Last update : July 12, 2023

What is Annuity?

An annuity is a contract created by an annuity issuer such as an insurance company. The insurance company agrees to make a series of payments to the annuitant (the person receiving the payments), in exchange for a series of premium payments. The payments may be paid at regular intervals (such as monthly, quarterly, or annual payments).

Annuities are a type of insurance that can provide you with a stream of income during retirement. They can be an important part of your retirement planning, as they can provide you with a source of income that you can’t outlive.

Annuities can be used to help you meet a variety of retirement income needs, including:

• providing a source of income that you can’t outlive

• supplementing other sources of retirement income, such as Social Security

• helping to preserve your wealth

• providing tax-deferred growth potential

There are a variety of annuity types, and each has its own features and benefits. 

Choosing Whether to Offer Qualified Employee Annuities :

Although annuities offer a guaranteed stream of retirement income, not many organizations offer annuities as a traditional investment option.

This is typical because there are hurdles and complexities employers face with annuities, such as: 

  • Finding an annuity provider that will be around for the long haul. That way, the provider can pay an employee over the course of their life.  
  • Finding a provider that offers substantial liability protection. 
  • Managing costs involved factors like moving participants’ investments from one employer to another. This generally entails fees that differ across providers/plans. 

While some employers do offer annuities as a central part of their retirement plans (they automatically enroll new employees unless they choose to opt-out), the majority are not yet ready to offer annuities to their employees.

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