is a contract in which an insurance company makes a series of payments to you
at regular intervals in return for a premium. Annuities are often bought for
future retirement income. The proceeds from an annuity can provide you with an
income for life, or for a specified period of time. There are two basic types
The first is
when you pay a lump sum to an insurance company and they start to pay it out to
you right away in periodic installments. This type is known as an immediate
annuity - the payments to you start immediately.
and more common, is where money paid by you accumulates interest over a period
of time. If you choose this type of annuity, the principal and accumulated
amounts will then be paid out to you in periodic installments, usually when you
retire, in order to supplement your retirement income. This type is known as a
deferred annuity - the payments to you are deferred for a number of years.
Currently, a deferred annuity may have tax advantages in that income tax is not
owed until you start receiving distributions from the annuity.