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What is an annuity? Here's what you need to know before buying one

An annuity is a financial product designed to provide a steady income stream, typically used for retirement planning. It involves an individual making a lump-sum payment or a series of payments to an insurance company, which in turn promises to make periodic payments back to the individual either immediately or at some point in the future. There are various types of annuities, including fixed, variable, and indexed, each offering different levels of risk and potential return. Fixed annuities guarantee a specific return, while variable annuities allow investment in sub-accounts similar to mutual funds, offering potential for higher returns but with greater risk. Indexed annuities provide returns based on a specified equity-based index, with some protection against market downturns. Annuities can be immediate, where payments start almost immediately after investment, or deferred, where payments begin at a future date. They serve as a tool to manage longevity risk, ensuring income for life or for a specified period, but they also come with considerations like fees, surrender charges, and the financial stability of the issuing insurance company.

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