Annuity
A financial product that pays a fixed sum of money at regular intervals, typically monthly or yearly, for a set period or lifetime.
A contract sold by insurance companies that guarantees regular payments to the buyer over a specified timeframe or for life. The buyer pays a lump sum upfront or in installments, and receives steady income in return. Annuities are commonly used for retirement planning to ensure predictable cash flow.
What this means in real life
A 65-year-old retiree invests $200,000 with an insurance company and receives $1,500 every month for the rest of their life, providing reliable income regardless of market conditions.
What it isn’t
It is not a one-time payment or lump sum. An annuity is specifically a series of regular payments over time, not a single payout or investment that grows without withdrawals.
Commonly misused online
People often confuse annuities with savings accounts or stocks, treating them as simple investments rather than insurance contracts that guarantee fixed payments in exchange for upfront capital.