What Is an Annuity?

Annuities are financial institution-issued and distributed (or sold) contracts in which money is invested with the objective of paying out a set income stream in the future. They are mostly used for retirement planning and to mitigate the danger of outliving one’s funds. The holding institution will release a stream of payments at a later date after annuitization.
Annuities were created to provide a stable source of consistent income flow for people in their retirement years, as well as to relieve concerns about outliving one’s assets. Annuities can also be used to convert a big lump sum payment into a regular stream of income, such as for lottery winners or those who have won a significant financial settlement in a lawsuit.

An annuity is a financial product that pays out a fixed stream of payments to an individual, and these financial products are primarily used as an income stream for retirees. Annuities are contracts issued and distributed (or sold) by financial institutions, which invest funds from individuals. They help individuals address the risk of outliving their savings.

The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.