What is the basic purpose of an annuity?

The basic purpose of an annuity is to liquidate a sum of money and protect against outliving one's income. Annuities are structured financial products designed to provide a steady stream of income, typically during retirement, which helps ensure that individuals do not deplete their savings or investment capital as they age. They can be particularly beneficial for retirees who want a guaranteed income for a certain period or for the rest of their lives, thus mitigating the risk of financial uncertainty in later years.

While some aspects of other options may be associated with annuities—such as tax treatment or investment returns—those aspects are not the primary purpose of an annuity. Life insurance coverage is a distinct financial product with a different aim, and tax-free growth is more commonly tied to specific types of accounts rather than the main purpose of an annuity. Maximizing investment returns, although a consideration in some investment strategies, is not the primary objective of an annuity, which focuses instead on providing income stability and longevity protection.