What is the primary purpose of annuities?

The primary purpose of annuities is to liquidate an estate through systematic payments. An annuity is a financial product that allows individuals to receive regular payouts over a specified period or for the rest of their lives. This characteristic makes annuities particularly useful for those who want to ensure a steady income stream during retirement or after they accumulate a lump sum. By converting a lump sum into a series of payments, annuities help individuals manage their financial resources effectively and minimize the risk of outliving their savings.

While other options address aspects related to financial planning and investment, they do not capture the main function of annuities as effectively as the focus on systematic payments. The creation of a new estate is more relevant to life insurance policies, accumulating retirement funds pertains to investment vehicles like IRAs or 401(k)s, and providing early access to investment funds aligns more with types of savings or withdrawal strategies rather than the structured payout nature of an annuity. Thus, focusing on the role of annuities in providing reliable income reinforces the understanding of their primary purpose in financial planning.