Annuity
Definition
A financial product that provides a series of regular payments over a specified period, often used for retirement income.
An annuity is a contract between an individual and an insurance company where you make a lump-sum payment or series of payments in exchange for regular disbursements that begin either immediately or at some point in the future. They are primarily used as a retirement income tool.
There are several types of annuities: fixed annuities offer guaranteed payments, variable annuities tie returns to investment performance, and indexed annuities offer returns based on a market index with downside protection. Immediate annuities begin paying out right away, while deferred annuities accumulate value before payments begin.
Annuities can provide peace of mind through guaranteed income, but they often come with high fees and surrender charges. It is important to compare the internal costs, surrender periods, and payout options before committing to an annuity contract.
Related Calculators
Related Terms
Compound Interest
financeInterest calculated on both the initial principal and the accumulated interest from previous periods, causing wealth to grow exponentially over time.
Interest Rate
financeThe percentage charged by a lender on borrowed money or paid to a saver on deposited funds, expressed as an annual percentage.
IRA (Individual Retirement Account)
financeA tax-advantaged savings account designed for retirement, offering either tax-deductible contributions (Traditional) or tax-free withdrawals (Roth).
Roth IRA
financeA retirement account funded with after-tax dollars that allows tax-free growth and tax-free withdrawals in retirement.
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