What is an annuity primarily used for?

An annuity is primarily used to provide a series of payments for retirement income, which makes it an essential financial product for individuals seeking to secure a steady income stream during their retirement years. The primary function of an annuity is to convert a lump-sum premium payment into periodic payments, which can last for a specified period or for the lifetime of the annuitant. This feature is particularly valuable for retirees who need to budget their expenses over an extended period, as it helps ensure that they do not outlive their savings.

Many individuals choose annuities specifically for their predictable income, which can be a reliable source of funds to cover living expenses, healthcare costs, and other necessary expenditures during retirement. Additionally, certain types of annuities can also offer investment growth potential prior to the distribution phase, adding another layer of financial planning for people looking toward their retirement years.

The other choices represent financial priorities or tools that do not align with the primary purpose of annuities. Buying real estate, funding higher education expenses, and investing in mutual funds focus on different financial goals and strategies rather than the consistent income stream for which annuities are typically designed.