Set up as contracts between the annuity holder and the insurer, annuities provide an assurance of income across a period of years. Delivered either through a series of premium payments or as a lump sum, the funds are accessed according to a prearranged schedule. The process of distribution is called an annuitization.
Some people prefer the strategy of immediate payments, which begin directly after the lump sum payment. The advantage of immediate payments is that a lifetime income is delivered through retirement. However, accessing the full lump sum may be impossible or come with high penalties.
Others prefer deferred payments, which typically begin after retirement. Deferred options occurring in the future do have a lump sum payment option, with monthly income payments also allowed. Another advantage is that deferred payments provide the opportunity for assets to grow over time, much like any invested retirement account. Distinct from 401(k) plans and IRAs, there is no upper limit to what can be contributed.
Brian Gibbs (San Diego) 