What is an annuity primarily used for?

An annuity is primarily used for providing a stable source of retirement income. This financial product is specifically designed to convert a lump sum of money into periodic payments, which can help individuals manage their cash flow during retirement. By purchasing an annuity, a retiree can receive consistent payments over a specified period or for the rest of their life, which can alleviate the risk of outliving their resources.

This focus on retirement income distinguishes annuities from other financial tools. For instance, while short-term investments aim to generate returns over a brief period and educational savings plans are geared towards accumulating funds for education expenses, annuities are structured to provide long-term financial security in retirement. Additionally, annuities do not directly relate to real estate financing but are rather a separate financial product aimed at securing income during one's retirement years.