Why might someone choose an annuity as part of their financial strategy?

Choosing an annuity as part of a financial strategy primarily revolves around its feature of providing guaranteed income during retirement. This characteristic is particularly appealing for individuals seeking financial stability in their later years, as it ensures a steady stream of income that can cover essential expenses, regardless of market performance.

Annuities mitigate the risk of outliving one's savings, which is a significant concern for many retirees. By opting for an annuity, individuals can plan their retirements more confidently, knowing there will be regular payments to rely upon. This can allow retirees to budget more effectively and reduce financial stress.

While annuities do have fees associated with them, they are generally considered a strategic investment for their income-generating potential. In contrast, annuities do not provide a way to avoid all forms of taxation; in fact, taxes may apply on earnings when funds are withdrawn. Additionally, many annuities impose penalties on early withdrawals, which can limit access to funds without incurring charges. Thus, the assurance of guaranteed income is the primary reason someone might incorporate an annuity into their financial plans.