Definition of 'Annuity'
A financial product sold by financial institutions that is designed to accept an
d grow funds from an individual and then, upon annuitization, pay out a stream o
f payments to the individual at a later point in time. Annuities are primarily u
sed as a means of securing a steady cash flow for an individual during their ret
Investopedia explains 'Annuity'
Annuities can be structured according to a wide array of details and factors, su
ch as the duration of time that payments from the annuity can be guaranteed to c
ontinue. Annuities can be created so that, upon annuitization, payments will con
tinue so long as either the annuitant or their spouse is alive. Alternatively, a
nnuities can be structured to pay out funds for a fixed amount of time, such as
20 years, regardless of how long the annuitant lives.
Annuities can be structured to provide fixed periodic payments to the annuitant
or variable payments. The intent of variable annuities is to allow the annuitant
to receive greater payments if investments of the annuity fund do well and smal
ler payments if its investments do poorly. This provides for a less stable cash
flow than a fixed annuity, but allows the annuitant to reap the benefits of stro
ng returns from their fund's investments.
The different ways in which annuities can be structured provide individuals seek
ing annuities the flexibility to construct an annuity contract that will best me
et their needs.