Annuities are designed to build wealth and income for your retirement through tax deferral. Interest earned in a deferred annuity (the most popular type) is not taxed until withdrawn. Deferring taxes accelerates savings growth because interest compounds faster without withdrawals needed to pay taxes.
Compounding occurs when interest is paid on previously earned interest. Most investments that earn interest, such as money market accounts, savings accounts, certificates of deposit (CDs) and most bonds, create taxable income. Since you’re paying federal (and often state) income tax on it each year, you’ll have less after-tax interest to compound, and your savings won’t grow as fast.
