What is the primary purpose of an annuity?

An annuity is fundamentally designed to deliver a series of payments made at regular intervals, serving primarily as a source of income, especially in retirement. This structure is particularly valuable for individuals who want to ensure they have a steady cash flow over a predetermined period or for the rest of their lives. Annuities can be constructed to meet various needs: for example, immediate annuities start payments shortly after a lump sum is paid, while deferred annuities begin payments at a future date. This emphasis on consistent income over time distinguishes annuities from other financial products.

The other options do not capture the essence of what an annuity is used for. A one-time lump-sum payment does not reflect the nature of an annuity, which focuses on periodic distributions. Managing short-term investments and facilitating real estate transactions pertain to different financial sectors altogether and do not align with the fundamental purpose of an annuity, which is centered around providing sustainable income. Thus, the focus on regular, recurring payments directly ties to the primary function of an annuity in financial planning.