An annuity is a contract with an insurance company designed to help accomplish one of two primary goals: accumulate money for the future or create a dependable stream of income.

While there are many different types of annuities and contract features, I like to simplify them into two general categories.

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An accumulation annuity is designed primarily to help your money grow over time.

Depending on the type of annuity, growth may come from a declared interest rate or from interest credits linked to the performance of a market index. With a fixed indexed annuity, for example, you are not directly invested in the stock market. Interest credited to the contract is determined by the indexing strategy and may be subject to participation rates, caps, spreads, or other limitations.

These annuities may appeal to someone looking for:

• Tax-deferred growth
• Protection from direct market losses
• Growth potential without directly investing in the market
• A way to accumulate money for future needs

An income annuity is designed to address a very different problem:

What happens if you outlive your money?

An income annuity can convert a portion of your assets into a predictable stream of income that can continue for a specified period or, depending on the contract and options selected, for the rest of your life.

For many people, the goal isn't simply accumulating the largest possible account balance. Eventually, the money needs to start providing income.

An income annuity may help create another source of dependable income alongside Social Security, pensions, or other income sources.

I like to put it simply:

Accumulation annuities are designed to help build the money.
Income annuities are designed to help turn money into a paycheck.

The right choice depends on what problem you're trying to solve.