What Is an Annuity?

An annuity is a contract between an individual and an insurance company designed to help provide income, often during retirement. In exchange for a lump-sum payment or a series of payments, the insurance company agrees to make future payments to the contract owner according to the terms of the contract.  According to FINRA, "An annuity is a contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time." Annuities can be purchased with a single payment or through a series of premium payments. There are several types of annuities:

• Fixed Annuities Provide a guaranteed rate of interest and predictable income.   

• Indexed Annuities – Offer growth potential linked to a market index while providing varying levels of protection from market downturns. 

• Variable Annuities – Allow participation in investment markets and may provide greater growth potential, but values can fluctuate based on market performance. Many retirees use annuities as part of a retirement strategy because they may provide guaranteed lifetime income and help reduce the risk of outliving their savings. However, annuities vary significantly in features, fees, surrender periods, guarantees,
and rider options, so it is important to review the contract carefully and determine whether the product fits your individual goals and financial situation.

 Sources: • FINRA Investor Education – Annuities

• U.S. Securities and Exchange Commission (SEC) Investor Education Resources • NAIC Consumer Guide to Annuities