What is an annuity commonly used for?

An annuity is primarily designed to provide a predictable and reliable source of income, particularly during retirement. When individuals retire, they often face the challenge of ensuring they have enough funds to cover their living expenses over an extended period. Annuities are structured to convert a lump sum of money into a series of payments that can last for a specified period or for the remainder of an individual's life. This feature makes them a popular choice for retirees seeking financial security and peace of mind, allowing them to manage their expenses without the worry of outliving their savings.

The other options, while relevant to different financial needs, do not align with the core purpose of an annuity. Starting a business often requires capital investments and may involve risks that an annuity does not address. Similarly, paying off existing debts is more about cash flow management rather than providing ongoing income, and investing in real estate involves higher risks and complexities that are not inherently tied to the income stability that an annuity offers. Annuities are distinctly focused on delivering long-term income, particularly in the later years of life.