Annuities are great tools to assist you in planning for retirement. Principal deposited and interest earned are both protected, which lends itself to dependability of funds being available when needed. The types of annuities available are quite varied but, in general, there are two main categories: immediate and deferred.

An immediate annuity will generate income to you as soon as your contribution has been accepted by the insurance company. You have the opportunity to select the income, on a guaranteed basis, for a specific period of years or throughout your lifetime. The insurance company calculates the amount of income you will receive, based upon how much money you deposit and your life expectancy.
A deferred annuity has two separate phases: the accumulation phase, where you allow your money to grow over a period of time, and the payout phase in which you receive income. During accumulation, your money grows tax deferred, until you take it out, either in a lump sum or as a series of payments. You control when to take the income, therefore when to pay any taxes due on the income. Having control over your taxes is one key benefit of owning annuities.

The payout phase is initiated when you decide to take income from your annuity. For most of us, this is for purposes of retirement income. As your needs dictate, you can take partial withdrawals, completely cash-out (surrender) your annuity, or convert your deferred annuity into a stream of income payments (annuitization).