An annuity is a financial contract between an individual and an insurance company designed to provide a guaranteed stream of income, typically used as a wealth management tool for retirement. In exchange for either a lump-sum payment or a series of regular premium payments, the insurer commits to making periodic disbursements to the investor either immediately or at a designated future date.

The Two Core Phases

Most standard annuities operate in two distinct chronological stages:

• Accumulation Phase: The period where the investor funds the contract, allowing the underlying capital to grow on a tax-deferred basis.

• Annuitization (Payout) Phase: The period where the accumulated funds convert into periodic income payments distributed to the investor.