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What is an Annuity?

What is an Annuity and should I have one?

An annuity is a series of payments made at equal intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates.

Key Points

  • Annuities are financial products that offer a guaranteed income stream, used primarily by retirees.
  • Annuities exist first in an accumulation phase, whereby investors fund the product with either a lump-sum or periodic payments.
  • Once the annuitization phase has been reached, the product begins paying out to the annuitant for either a fixed period or for the annuitant's remaining lifetime.
  • Annuities can be structured into different kinds of instruments - fixed, variable, immediate, deferred income, that give investors flexibility.

For more information please read our free handout, Is an Annuity an Investment or Insurance?

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