Annuities or “Private Retirement Insurance”
An annuity is a long-term contract you purchase from an insurance company. It is designed to help accumulate assets to provide income for retirement.
An annuity provides a tax deferral of interest and capital gains and may even provide a guaranteed monthly income for life if the funds are annuitized. Using an annuity as a retirement vehicle is desirable because the money accumulating in an annuity grows on a tax deferred basis. There are generally two parts to an annuity, the accumulation phase and the distribution phase.
During the accumulation phase, the annuity terms may vary depending on the type of annuity that is selected. Annuities may be purchased with a lump sum payment or with recurring periodic payments.
During the distribution phase, the annuitant can withdraw money or annuitize. If the annuitant opts to withdraw money, the money can either be taken out in a lump sum or can be systematically withdrawn. If the owner opts to annuitize, an annuity pay out plan is purchased.