Annuity

An annuity is a financial product that provides a series of payments over a predetermined period, typically used for retirement income. It is often purchased through an insurance company and can offer a steady income stream during retirement.

Example #1

John decided to purchase an annuity with a lump sum of money he had saved for retirement. In return, he would receive monthly payments for the rest of his life.

Example #2

Sarah inherited an annuity from a family member, which meant she would receive regular payments without having to worry about outliving her savings.

Misuse

One misuse of annuities can be the imposition of high fees or commissions by some salespeople that may not be in the consumer's best interest. It's important to carefully review all terms and conditions before purchasing an annuity to ensure it aligns with your financial goals and needs.

Benefits

Annuities can provide a sense of financial security by guaranteeing a steady income stream, which can be especially beneficial during retirement when regular paychecks may no longer be available. In addition, certain types of annuities offer tax-deferred growth on your investment, helping you save more for the future.

Conclusion

Understanding the features, fees, and terms of annuities is crucial to making informed decisions about your financial future. Consumers should always conduct thorough research and seek advice from financial professionals to ensure that an annuity aligns with their long-term goals and financial situation.

Related Terms

Retirement PlanningInsuranceFinancial Planner