STEVE BOULTON - STATE FARM INSURANCE AGENT

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An annuity is a contract between the owner of the annuity and the company issuing it. You buy the annuity and the company pays you interest on the money. At a certain age you start taking the money out and you could receive payments for as long as you live.

Annuities and life insurance are often mentioned in the same conversation because most annuity contracts are written by life insurance companies. However, life insurance is intended to meet the needs of the beneficiaries after the death of the policyholder. With annuities, the intention is to provide additional income to policyholders during their retirement years.

Retirement annuity and life annuity are common terms used when discussing annuities.

Retirement annuities: These are commonly used as part of an overall retirement plan. Knowing how much money you'll need in retirement can be a tricky question since we don't know how long we're going to live or what kind of health conditions we may or may not experience. Therefore, an annuity can provide a way to supplement your Social Security and other retirement savings.
Life annuities: Annuities are also often referred to as life annuities because they provide you with a guaranteed income for life. A major concern people have about retirement is running out of money. An annuity can ensure you will never outlive your money in retirement.

There are distinct phases of annuity contracts.

Accumulation phase: The period of time after you purchase your annuity and before you start receiving payments. During this phase, your investment will grow at a guaranteed minimum interest rate. This growth is tax-deferred for annuities purchased outside of a qualified retirement plan, like an IRA or 401k.
Annuitization phase: When you start receiving payments, typically at retirement.

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