What is An Annuity?

What is an annuity? An annuity is an investment product that pays out a steady stream of income over time during retirement. When you purchase an annuity, usually from an insurance company, you agree to make a lump sum payment up front, or regularly scheduled payments at agreed-upon intervals. In exchange, you are guaranteed a fixed payment for a particular period of time: either a set number of years or until you or your spouse dies, depending on your policy.

The amount you are paid out by the insurance company is called a distribution. The contributions you make are invested by the annuity company and grow until you begin taking distributions. As you are the one receiving the distributions, you are also responsible for paying the taxes, though usually only on the growth portion of your money.

The annuity contract sets the age the payments will start, the amount of each payment, what the payment intervals will be, and many other details. There are many types of annuities. Here are a few:

  1. Fixed
  2. Variable
  3. Immediate
  4. Deferred
  5. Equity Indexed

Choosing an annuity depends on the amount of money you are looking to have in retirement as well as the amount of risk you are willing to take. The ultimate goal of any annuity product is to provide stable, long-term income for the holder.

About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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