What is a major use of annuities in retirement planning?

In the context of retirement planning, a significant use of annuities is to liquidate principal over a specified period or for the lifetime of the annuitant. Annuities are financial products that allow individuals to convert a lump sum of money into a stream of income, which can be especially valuable during retirement when individuals may no longer have a consistent paycheck.

This process ensures that retirees can manage their income in a way that meets their needs and sustains their standard of living throughout retirement. By liquidating principal through regular payments, retirees can avoid the risk of overspending their savings and ensure that they have guaranteed income until they choose to stop receiving payments or until they pass away.

While options like providing health insurance or cash value accumulation have their importance in overall financial planning, they do not primarily serve the same essential role in retirement strategy as liquidating principal does. Short-term savings typically focus on immediate financial needs and are not directly associated with long-term retirement income. Thus, using annuities to liquidate principal aligns closely with the goals of ensuring financial security and providing ongoing income during retirement.