← Back to Glossary
Annuity
Definition
An annuity is a financial product that provides a guaranteed stream of income for a specified period, typically used for retirement income.
Explanation
Annuities are contracts with insurance companies. You pay a lump sum or series of payments, and the insurer guarantees regular payments starting immediately or in the future. Types include fixed (guaranteed return), variable (market-linked), and indexed annuities.
Annuities provide guaranteed income but often have high fees, limited liquidity, and complex terms. They are best suited for retirees seeking predictable income who have maxed out other retirement options.
Example
A $200,000 fixed annuity paying 5% annually would provide $10,000 per year ($833 per month) for life or a specified period.