An annuity is a contract between the insured and the insurance company in which a lump-sum payment or series of payments and, in return, receive regular disbursements, beginning eighter immediately or at some point in the future.
It is an insurance contract that provides you with income in retirement. With a fixed index annuity, payments are based on the performance of a stock market index, like the S&P 500. Unlike owning stocks, you’re protected against most losses—but your total returns may also be limited.
It is an insurance contract that generates income for retirement. In exchange for one-time or recurring deposits held for at least a year, an annuity company provides incremental repayments of your investment plus some amount of returns.
Generally, you don’t pay taxes on the income received in the annuity. You pay tax when the amount is out from the tax-deferred account. You earn more from the benefit of compounding when you keep the amount within a contract and keep reinvesting the earnings and again earn interest on those earnings.