What is a key purpose of an annuity?

The primary purpose of an annuity is to accumulate money on a tax-deferred basis. This means that the funds invested in the annuity grow without being taxed until they are withdrawn. This feature makes annuities particularly attractive for individuals looking to save for retirement or other long-term financial goals, as it allows their investments to compound over time without the immediate tax burden that would typically be imposed on earnings from other investment vehicles.

The tax-deferred growth is significant because it can potentially lead to a larger accumulation of funds compared to taxable investment accounts, where earnings are taxed annually. Therefore, choosing to invest in an annuity can be a strategic way to enhance savings and defer taxes on investment gains until retirement, when one might be in a lower tax bracket.