Annuity
A financial product sold by insurance companies that provides a series of payments over time, typically used to provide guaranteed income in retirement.
Understanding Annuity
Annuities can be immediate (payments begin right away) or deferred (accumulation phase before income phase). Fixed annuities provide guaranteed returns, variable annuities invest in market subaccounts, and fixed index annuities (similar to IUL) link returns to a market index. Like IUL, annuity growth is tax-deferred, but unlike IUL, annuity distributions are taxed as ordinary income. Annuities also lack the death benefit flexibility of life insurance.
Why This Matters for Retirement: Understanding Annuity is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.