That’s right! Annuities have existed longer than the United States of America! It started when a group was from the Pennsylvanian Presbyterian ministers and their families wanted to receive benefits. The ministers would give to the group fund and, in return, they would be receiving income payments for life.

But it wasn’t until 1912 when Americans could first purchase annuities outside of select groups. Retirement annuities are a great way to ensure that you never outlive your income. But how do they work? Below, we have broken down some of the most common questions related to annuities. 

What’s an Annuity?

An annuity is an investment tool that provides an individual a steady stream of income when they retire. It is a contract issued by a financial institution and funds invested by the individual earn tax-deferred interest. When written correctly, it can act as a security blanket, preventing any possibility of you outliving your money. An individual will receive the income payment after a set period of time. This will come from your annuity.

Annuities have two phases: accumulation and annuitization. The accumulation phase is at the time the individual invests their funds into the annuity, which in turn accrues interest over time. The annuitization phase of an annuity refers to the period when the owner of an annuity begins to receive payments from the investment. The interest income is taxable once withdrawals begin.

Important Points

  • Annuities offer a stream of income upon retirement.
  • Accumulation begins once the individual invests in the annuity.
  • Annuitization begins once the individual begins withdrawing.
  • Interest earned is tax-deferred until annuitization begins.

What Types of Annuities Are There?

There are two main types of annuities: fixed and variable. Read below to understand the difference.


Fixed Annuities – stable, periodic payments

Variable Annuities – differing payment amounts


A fixed annuity has a minimum interest rate. The growth of your annuity does not get tied to the success of investments on the stock market. Your income payment amounts are 100%. The risk of investment is on the insurance company rather than the owner of the annuity. The premium invested goes into a general account rather than a separate account.

Insurance Professionals of Arizona offers fixed annuities from various insurance companies. Call today to speak with our annuity specialist about your retirement plans at


Is a Variable Annuity Riskier?

Why is a variable annuity riskier? It is because your investments go into different mutual funds. Your interest rate and income payments are not 100%. They can rise and fall depending on the stock market. For those that have investment experience, variable annuities could be profitable if they are willing to take some losses to eventually have gained. But the annuitized bears the full risk of investment, not the insurance company.


If you are new to annuities, the safest route is to get a fixed annuity. If you have investment experience and do not fear market drops, then a variable annuity could work for you. It’s all dependent on your personal financial situation and what fits best with your experience.

Is an Annuity a Life Insurance Policy?

No, they are not. In fact, they work in the exact opposite way as a life insurance policy. While a life insurance policy benefits the named beneficiary when the named insured dies, an annuity benefits the policy owner while they are still living. An annuity can have a named beneficiary to receive payments in the event that the primary policyholder dies before annuitization (withdrawal) finishes. But remember, there is no death benefit lump sum payment from an annuity.

Who Should Buy an Annuity?

If your employer does not offer retirement benefits such as a 401K with company match, you are self-employed, or if you are simply looking to have additional income when you retire, then an annuity is for you. An annuity ensures that you have a steady income in the event that your 401K runs dry or your Social Security payments don’t cover your needs.


Annuities are available for any adult at most stages of life. Plus, you can set up your annuity to continue paying your beneficiary with at least the amount that you invested in if you die before annuitization finishes. This is a great way to ensure that your loved ones receive regular income payments in the event of your passing. However, an annuity should not replace the benefit of having a term or whole life insurance policy.

How Does My Annuity Pay Me?

Once the accumulation stage of your annuity comes to a finish, you can start to receive payments of your principal (what you invested into the annuity) and your interest (the amount that grew in your annuity). Remember, any interest payments are tax-deferred until you start to annuitize. You can choose how often you receive income payments from your annuity. Payments can be made monthly, quarterly, bi-annually, or annually.


If you have money sitting around in a savings account, it is probably earning you less than 1/2 a percent in interest. If you want guaranteed income at a fixed rate during your retirement, you might consider moving some of that money into a fixed deferred annuity.


Using annuities as a way to get income when you retire is a smart investment. And it’s never too soon to start! Securing a fixed-rate deferred annuity ensures financial stability for yourself and your beneficiaries. Insurance Professionals of Arizona has a dedicated annuity agent that is ready to answer your questions and set you up for financial success. Call us today to ensure that you never outlive your income!

Now It’s Your Turn

And now I’d like to turn it over to you:
Did you learn something new from this

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IPA Team

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