Annuities are financial contracts with insurance companies that provide guaranteed income payments in exchange for a lump sum or series of premium payments. They serve as a bridge between accumulation and distribution phases of retirement planning, offering predictable income streams when traditional employment income ends.

Immediate annuities begin payments within a year of purchase and work well for retirees who need income right away. Deferred annuities allow your money to grow tax-deferred before converting to income payments at a future date. Fixed annuities provide guaranteed interest rates and predictable payments, while variable annuities offer growth potential tied to market performance but with more risk.

Annuities provide longevity protection by guaranteeing income for life, eliminating the risk of outliving your savings. They offer tax-deferred growth during the accumulation phase, allowing your money to compound without annual tax obligations. Many annuities include death benefits to protect beneficiaries, and some offer inflation protection riders to maintain purchasing power over time.

Consider laddering multiple annuities with different start dates to create flexible income streams. Use annuities to cover essential expenses while keeping other investments for discretionary spending. The "bond replacement" strategy involves using annuities instead of bonds for the conservative portion of your portfolio, often providing higher guaranteed yields.

Annuities typically have limited liquidity, with surrender charges for early withdrawals that can last several years. Fees can be complex and vary significantly between products, including management fees, rider costs, and insurance charges. It's crucial to understand the financial strength of the insurance company backing your annuity, as your payments depend on their ability to honor the contract.