What is a retirement annuity?

A retirement annuity is a basic annuity where you pay on a contract for a set period of time and in return receive income, often for life. Retirement annuities provide predictable income, giving people increased financial security and peace of mind. Here is how retirement annuities work and how to decide whether they might be right for you.

How do retirement annuities work?

Retirement annuities promise lifetime guaranteed monthly or annual income for a retiree until their death. These annuities are often funded years in advance, either in a lump sum or through a series of regular payments, and they may return fixed or variable cash flows later on.

What are annuities used for?

Annuities are mainly used for retirement purposes and help individuals address the risk of outliving their savings. Annuities are financial products that offer a guaranteed income stream, usually for retirees. The accumulation phase is the first stage of an annuity, whereby investors fund the product with either a lump sum or periodic payments.

What are the benefits of retirement annuities?

Another benefit of retirement annuities is that typically, they are professionally managed. This eases the burden on you as the retiree. Plus, annuity managers usually have the expertise and resources to manage the underlying investments and ensure a steady income stream for retirees.