Certain annuity features such as surrender charges implemented by insurance companies, or early withdrawal penalties implemented by the IRS, reduce liquidity.For instance, a heavy spender who suddenly receives a large inheritance can use an annuity to reduce the risk of overspending and depleting their assets. Annuities can be used as a regulated stream of income, which can make it easier for a person to manage their assets in a way that ensures that those assets last for the duration of their lifetime.For example, a retiree who is more concerned about outliving their assets than receiving the highest returns possible may find annuities appealing. Certain annuities can provide guaranteed, predictable income with minimum risk, which can make them attractive to highly conservative investors.Unlike other retirement plans, there is no limit to the amount that can be invested in an annuity.
For deferred annuities, similar to 401(k)s or traditional IRAs, there are tax benefits associated with building capital by deferring the payment of taxes. Different annuities serve different purposes, and have pros and cons depending on an individual's situation. There are many different types of annuities, including tax-advantaged annuities, fixed or variable rate annuities, annuities that pay out a death benefit to families or last a lifetime, and more. It is important for each individual to evaluate their specific situations or consult professionals. In general, annuities make sense for some, but not all. The majority of annuity investments are made by investors looking to ensure that they are provided for later in life. Annuities can also be helpful for those seeking to diversify their retirement portfolios. As a result, conservative investment options can be sparse, and buying an annuity can be a viable alternative. Many people find that as they get older, investment options with tax shields approach or reach their contribution limits. Most people use annuities as supplemental investments in combination with other investments such as IRAs, 401(k)s, or other pension plans. Earnings in annuities grow and compound, tax-deferred, which means that the payment of taxes is reserved for a future time. Insurance companies that offer annuities pay a specific amount over a predetermined period of time either as an immediate annuity (beginning immediately) or as a deferred annuity (after an accumulation phase). The owner controls incidents of ownership in the annuity, has the right to the cash surrender value, and can also assign the policy and make withdrawals. The investor, or annuity owner, is usually the policyholder and is often also the annuitant (the beneficiary (or beneficiaries) of the annuity whose life expectancy and age are used to determine the terms of the annuity). 
In many cases, this sum is paid annually over the duration of the investor's life. In the U.S., an annuity is a contract for a fixed sum of money usually paid by an insurance company to an investor in a stream of cash flows over a period of time, typically as a means of saving for retirement. Related Annuity Payout Calculator | Retirement Calculator
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