Annuity

What Is Annuity?

Annuity describes a financial product or an investment tool that makes regular payments to an individual who has reached retirement age during a period of time already selected. Many people employ annuities as one of the forms of their retirement income planning, which enable them to get a regular income as a supplement to their pension, Social Security benefits, or other sources of retirement income. In annuities, annuity lifetime, per annum, annuities quote, annuities calculator, annuities tax-related characteristics, tax-related annuities, annuities payments may be fixed, variable or indexed and have different features, advantages and risks. The main building blocks of an annuity constitute the amount of the principal, the period of annuitization, the frequency withdrawal of the payment and the rate of return.

Example

Take a person who is 65 years old and buys a fixed annuity of $500,000 as the principal amount. The annuity contract will state that the individual will be paid $2,500 per month for the rest of their life. This arrangement enables a retiree to have a regular cash flow that they can use to pay for daily needs, medical care, and other obligations. The fixedness of annuities means that retirees can experience a risk-free investment return without having to worry about market volatility affecting their income stream. Through the splitting of one-time savings allocation into a sequence of frequent payments, annuities help seniors handle longevity risk as well as sustain adequate finances in their post-career life.