How It Works
Annuities are flexible retirement tools. Here is how they work in three simple steps:
- You buy an annuity from a life insurance company.
- Your money can grow tax-deferred until you withdraw it.
- You can turn your annuity into guaranteed income when you retire.
The Steps Explained
You buy an annuity by making a single lump sum paying, or in some instances, by making recurring payments over time. Then, the insurance company invests your payment so the amount earns interest. Depending on the type of annuity you choose, the interest may or may not alter the payments you get or the duration the annuity pays.