An annuity is an agreement between an individual and an institution, usually an insurance company. The insured purchases an annuity contract from the insurer who then pays back the money at a specified time in a lump sum or over a period of time, explains Thrivent Financial.
Annuities are a financial option that enables a person to save for retirement. At the specified time, such savings and assets earn the individual a steady income stream. An annuity is a long-term contract that ensures a person is ready for retirement. Through the payments the individual makes, the annuity prepares him for retirement and protects him from the risk of outliving his income, according to Thrivent Financial.
Thrivent offers two types of annuities: immediate annuities and deferred annuities. Immediate annuities apply when a person seeks to transform a given amount of money or an asset into fixed income that can last for the rest of his life, states Thrivent Financial. Deferred annuities apply when an individual pays premiums with the aim of saving for retirement. At retirement, the individual receives a steady flow of income from the insurer. Immediate annuities turn assets into an income that can be received right away, while deferred annuities hold money or assets for income to be received later in life.