What Is Annuity?
An annuity is a contract, usually with an insurance company, that converts a lump sum or a series of payments into a stream of income — most often used for retirement. A common type, the immediate fixed annuity, starts paying you a set amount each month for life once you fund it. Variable annuities tie payments to investment performance and carry more risk and fees.
Why it matters
Annuities address "longevity risk" — the chance you outlive your savings. They are not life insurance; they are the inverse, paying while you are alive rather than on death.
Common confusion
An annuity is not the same as life insurance. Life insurance pays a beneficiary when you die; an annuity pays you while you live.
Frequently Asked Questions
Are annuities safe?
Safety depends on the insurer’s financial strength and whether the annuity is fixed or variable. Fixed annuities guarantee payments; variable ones can lose value with the market.
Can I get my money back early?
Many annuities charge surrender fees if you withdraw within the first several years, and withdrawals before age 59½ may trigger a tax penalty.