An annuity is a contract issued by an insurance company. Depending on the type and terms, it may help accumulate assets, protect principal or create a stream of retirement income.

Why people consider annuities

The central attraction is often predictable income. Certain annuities can convert a portion of savings into payments designed to last for a specified period or for life.

Know the categories

Fixed annuities credit interest under contract terms. Indexed annuities link credited interest to an external index subject to caps, participation rates and other limits. Variable annuities use investment subaccounts and involve market risk.

Understand the tradeoffs

Annuities may include surrender periods, fees, liquidity limits and optional riders with additional costs. Guarantees depend on the claims-paying ability of the issuing insurer.

Fit comes first

An annuity is not automatically right or wrong. The question is whether its guarantees, access rules, time horizon and costs serve a specific need in your larger retirement strategy.

Before purchasing: clarify the job the annuity must do, the money you may need access to and every fee or surrender condition.

This article is educational and does not constitute tax, legal or individualized financial advice. Product features, guarantees and availability vary.