What Is the Difference Between Annuities, Stocks and Bonds?

There are many investment vehicles that can be used to save into or take income out of to fund one's retirement. Here is a brief introduction to three common retirement savings vehicles--annuities, stocks and bonds.

Stocks

A share of stock is an ownership interest in a company. Stocks are generally purchased to generate capital growth and increase the amount of retirement assets. Some stocks can be used to generate income in the form of dividends, but capital appreciation is typically the primary objective.

Bonds

A bond is the ownership of a companies debt. In return for loaning the company money, the company pays interest in return. Bonds are typically considered safer investments than stocks and provide lower returns over long periods of time.

Annuities

An annuity is a contract issued by an insurance company. Some annuities pay fixed rates of interest and a similar to a certificate of depoist. Other annuities make investments into stock and bond funds.

Considerations

Stocks, bonds and annuities are all excellent retirement savings vehicles. Depending on an investors' time horizon and risk tolerance, each has unique advantages. Stocks have the greatest growth potential, bonds provide a level of stability and income, and annuities offer guarantees that neither stocks nor bonds can provide.

Sources of Income

In retirement, one has several options to generate income. Those that own stocks can sell them and those that hold bonds can take the interest payments as income. The owners of annuities can turn their contracts into a stream of payments for the remainder of their life.