Think of an annuity as a personal retirement strategy that can help your money grow and make it last longer when you retire. Your money grows faster because you don’t pay taxes on earnings until you actually withdraw them or until distributed to you. Then when you need it most, it can guarantee income for life.
An annuity is a contract between you and an insurance company. You put money into the contract and in return, accumulate money which later it can provide a lifetime income stream. Money distributed from the annuity will be taxed as ordinary income in the year the money is received. Annuities are designed for long-term accumulation purposes. Guarantees, including interest rates and subsequent income payouts, are backed by the claims-paying ability of the issuing company. Prior to age 59 ½, early or excessive withdrawals may be subject to surrender charges or a penalty.