How do annuities assist in retirement planning?

Annuities play a significant role in retirement planning primarily by offering a steady income stream and tax-deferred growth. When individuals retire, having a reliable source of income becomes crucial to cover living expenses, and annuities are designed to provide this kind of financial security. They can be structured to guarantee regular payments for a specific period or for the lifetime of the annuitant, ensuring that retirees can manage their cash flow effectively throughout retirement.

In addition to providing a predictable income, annuities also offer tax-deferred growth. This means that any earnings on the investment within the annuity are not taxed until they are withdrawn, allowing the investment to grow more effectively than it would in a taxable account. This tax advantage can significantly enhance the overall growth of retirement savings, making annuities an appealing option for long-term financial planning.

While other choices touch upon aspects of financial planning, they do not capture the dual benefits of income stability and tax efficiency provided by annuities in the context of retirement funding.