An annuity is a contract between you and an insurance company. Its main purpose is to offer tax-deferred growth potential while you’re saving for retirement, and dependable income after you retire.
Annuities are designed to complement other financial products as part of your overall retirement strategy. They offer important features and benefits that can help you accumulate for retirement, supplement your retirement income, and even help diversify your portfolio.
You don’t have to pay income taxes on the earnings in your contract until you take money out of your annuity. Tax deferral may help the money in your annuity compound over time, for even greater accumulation potential.
After a period of time specified by your contract, annuities provide guaranteed retirement income. Some annuities let you choose from a variety of income options. These options may either be built in to the contract or optional and available for an additional cost.
By providing potential growth that is tax deferred, an annuity's investment earnings can accumulate and compound untouched by federal, state, or local income taxes until you begin making withdrawals, which is usually after retirement.
Annuities can help protect the money you place in your contract, also known as the "principal." Some annuities protect all of your principal from market downturns, while others offer greater potential in exchange for some market risk, including the risk of losing principal.