What is the purpose of an annuity?

An annuity is a financial product designed primarily to provide a steady stream of income, typically during retirement, by liquidating funds systematically over time. This process allows individuals to convert a lump sum of money into periodic payments, which can be structured in various ways—such as monthly or annually—depending on the terms of the annuity contract.

This feature is particularly valuable for retirees who want to ensure they have a reliable source of income throughout their retirement years, which can help in budgeting and financial planning. The other options do not align with the primary function of an annuity; while some may provide ancillary benefits or features, the essence of an annuity lies in its ability to distribute funds over a specified period, thereby ensuring that the policyholder has a predictable income stream.