What is an Annuity?

A simple Annuity definition is a series of fixed payments paid at regular intervals over a specified period of the time. Essentially annuities are tax deferred retirement savings plans, designed to provide an income stream-- either at some future date or immediately.

When purchasing annuities, a annuity contract is signed with an insurance company, agreeing to invest a certain amount of money. In return, the insurer promises to credit earnings to the purchaser's account and agrees to annuitize the account value if desired. Annuitization means the insurer will return the principal and earnings in regular payments that are guaranteed to last for the rest of the purchaser's life. Or, if desired, money can be withdrawn as a lump sum, in a systematic way over a specific term, such as 10 or 20 years. Annuity guarantees are based upon the claims paying ability of the issuing insurance company.

Many investors use annuities primarily as a way to accumulate tax deferred Annuity earnings without intending to annuitize. Because they don’t owe income tax on any earnings until they withdraw or begin to receive Annuity payments, they have the potential to accumulate a larger account balance than in a taxable account. Other investors buy annuities as a personal pension, to provide a stream of guaranteed lifetime income.

Annuity Basics - Annuity Definition

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Types of Annuities






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