Life insurance is focused on providing a financial benefit to beneficiaries upon the death of the insured, while annuities are focused on providing a guaranteed income stream for retirement. An annuity is a financial product typically used for retirement planning, designed to provide a steady income stream in exchange for a lump sum payment or a series of payments. Annuities are offered by insurance companies and come in various types, each with its own features and benefits. The basic concept of an annuity involves an individual (the annuitant) making a lump-sum payment or a series of payments to an insurance company, which then invests the money and agrees to pay out a guaranteed income stream to the annuitant for a specified period or for life. Typically, an annuity provides income you cannot outlive.


There are several types of annuities, including:

1. Immediate Annuities: These annuities begin paying out income immediately after the lump sum payment is made. They are often used by individuals who are already retired and looking for a way to convert their savings into a steady income stream.

2. Deferred Annuities: Deferred annuities allow the annuitant to make payments over time and then begin receiving payments at a later date, typically during retirement. These annuities can be either fixed or variable.

3. Fixed Annuities: With a fixed annuity, the insurance company guarantees a fixed rate of return on the annuitant's investment, providing a predictable income stream. These annuities are considered less risky but may offer lower returns compared to other investment options.

4. Variable Annuities: Variable annuities allow the annuitant to invest their contributions in a variety of investment options, such as stocks, bonds, and mutual funds. The income stream from a variable annuity can vary based on the performance of the underlying investments, offering the potential for higher returns but also greater risk.

5. Indexed Annuities: Indexed annuities are tied to a stock market index, such as the S&P 500. These annuities offer the potential for higher returns based on the performance of the index, while also providing some level of protection against market downturns.

Annuities can be a valuable tool for retirement planning, providing a guaranteed income stream that can help supplement other sources of retirement income, such as Social Security and pensions. However, they are not suitable for everyone, and it's essential to carefully consider the terms, fees, and potential risks associated with an annuity before making a decision. Consulting with a financial advisor can help you determine if an annuity is the right choice for your retirement goals.