What is the primary purpose of an annuity?

The primary purpose of an annuity is to protect against living beyond one's savings. Annuities are designed to provide a steady stream of income during retirement, ensuring that individuals do not outlive their financial resources. By converting a lump sum of money into periodic payments, usually over a specified period or for the lifetime of the annuitant, annuities help to mitigate the risk of depletion of savings due to longevity.

This function is particularly important for retirees who rely on their savings to maintain their standard of living throughout their retirement years. The structured payouts of an annuity ensure financial security and peace of mind, as individuals can budget their expenses without the anxiety of running out of money.

While options related to one-time cash payments, life insurance, or cash value accumulation are features or benefits of other types of financial products, the core objective of an annuity is centered on providing income continuity and longevity protection.