An annuity is a retirement

-planning tool that has two phases: the accumulation phase and the annuitization phase. In the accumulation phase, you give money to an insurance or investment company over a period of time or in a lump sum, and it earns a rate of return. In the annuitization phase, you begin to withdraw regular payments (such as monthly or annually) from your contract until you die.

An annuity has a death benefit, although it is not like one found in a life insurance policy. If you die before you annuitize, your beneficiary will receive either the current value of your annuity or the amount you have paid into it, whichever is greater. For example, if you die when your investments are performing poorly and your account value is less than what you have paid in, your beneficiary would receive the amount you paid in.