Timothy Sumer

What are Annuities? An annuity is a contract between you and an insurance company that promises to pay you income. Different types of annuities are sold by a variety of institutions and professionals, such as insurance companies, banks, and financial advisors. You can purchase an annuity by making a lump sum payment, or making multiple payments--called premiums--over time. In return, the insurance company invests your money and typically gives you a series of payments, which is called annuitization. If your payments start right away, it's called an immediate annuity; if they're delayed until some time in the future, it's a deferred annuity. The income you receive from an annuity can be paid out monthly, quarterly, yearly, or even as a lump sum payment. A big advantage of annuities is that you can contribute as much as you want for retirement. Unlike other tax-deferred vehicles—such as a workplace 401(k) or an IRA—annuities have no annual contribution limits.