An annuity is a contract that gives a person (called an annuitant) the right to receive fixed, periodic payments, either for life or for a set period of time. Many people choose to include an annuity as part of their retirement plan, to make sure that they’ll have a stable source of income once they stop working. You can pay for an annuity either in one lump sum, or by making a series of payments, and the annuity can be set up to give you payments either monthly, quarterly, biannually, or annually.
There are two types of annuities: fixed and variable. A fixed annuity gives you a guaranteed payout no matter how much the market fluctuates. It’s the safer investment. In a variable annuity, the payments to you will vary depending on the performance of the investments underlying your annuity. This will benefit you in a strong economy, but work against you in a weak economy.
Generally, an annuity stops when the annuitant dies. In some rare cases, an annuity can be set up so that, when the annuitant dies, the annuity rolls over to a surviving spouse.
While annuities can be a valuable part of a retirement plan because of the stability and predictability they offer, they should be suitable to your specific situation. Before you decide to invest in an annuity, be sure to do your research, and consult with a qualified financial planner.