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What is an annuity?
It’s an insurance product you buy to save a significant amount of money and it offers a way to reduce taxes, and/or ensure a steady flow of income.
It's a contract between you and an insurance company. People buy annuities if they:
- Need to save significantly
- Want an investment that reduces taxes
- Want to ensure a steady flow of income
How annuities work
- You pay either a single premium or make payments for a set period of time in exchange for a future income.
- They should increase in value and be income-tax free.
- You can request to receive payments in a lump sum or in periodic fixed amounts.
- A popular payout option is "lifetime income with 10 years certain." This means the annuity pays a monthly income for the life of the annuitant or for 10 years, whichever is longer.