What is an annuity primarily used for?

An annuity is a financial product designed to provide a stream of income over a specified period, which often coincides with retirement. It functions by allowing individuals to invest a lump sum upfront in exchange for a series of regular payments, typically disbursed monthly, quarterly, or yearly. This feature makes annuities particularly appealing for retirees seeking a reliable income source to cover living expenses after they have stopped working.

By converting a portion of their savings into an annuity, individuals can ensure that they will receive a predictable income for a set number of years or even for the rest of their lives, depending on the type of annuity selected. This structure can provide peace of mind, as it helps retirees manage their finances more effectively during retirement, allowing them to budget their expenditures with confidence that they will have enough income to meet their needs.

The other options pertain to different financial products or strategies that do not offer the same structured income benefits specifically associated with annuities. While a lump-sum payment, debt repayment, and funding for educational expenses are important financial considerations, they do not utilize the regular income mechanism that annuities provide, which is crucial for individuals planning for retirement.