Annuity

Definition

An annuity is a contract between you and an insurance company in which you make a lump-sum payment or series of payments and, in return, receive regular disbursements, either immediately or at some point in the future. The goal is to provide a steady stream of income during retirement.

Example

You purchase a fixed immediate annuity for $200,000. The insurance company then agrees to pay you a guaranteed $1,200 per month for the rest of your life, providing predictable income to cover your living expenses.