A long-term contract sold by life insurance companies that guarantees payments, fixed or variable, to the purchaser in regular intervals through annuitization. During the accumulation phase, fixed annuities offer consistent, predictable returns; whereas, variable annuities provide fluctuating returns based on the performance of an investment portfolio. Payments are usually scheduled to begin at a future time, such as retirement, but in certain cases may begin immediately. Annuities provide tax-deferred earnings during the accumulation phase, with taxes due upon distribution. Distributions prior to age 59 1/2 may be subject to an additional 10% federal tax penalty.
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