What is the primary purpose of an annuity?

• A. To protect against outliving one's income
• B. To provide life insurance protection for survivors
• C. To guarantee a fixed monthly salary for life
• D. To replace investment earnings

Answer: (A)

Annuities are designed to guard against longevity risk by turning a lump sum into a steady stream of payments that can last for life. The main goal is to provide income you cannot outlive, helping retirees budget and maintain spending no matter how long they live.

This is why the primary purpose is to protect against outliving income. Life insurance for survivors covers the risk that loved ones lose financial support after death, which is not what an annuity is primarily for. While some annuities can promise lifelong payments, not all guarantee a fixed monthly salary for life in every case, and payment amounts can vary with the product type. Annuities are not intended to replace investment earnings; they distribute the principal over time to provide income, rather than attempt to reproduce investment returns.