Retirement and Social Security
Definition
A contract with an insurance company that turns money into a stream of payments, now or later, sometimes for life.
What it means
An annuity is an insurance product. You pay a lump sum or a series of payments, and the insurer agrees to make payments to you, either right away (an immediate annuity) or starting later (a deferred annuity). Fixed annuities pay a set rate, variable annuities depend on investment results, and indexed annuities follow a market index with limits. Lifetime payments can protect against outliving your savings, but money may be hard to reach early and surrender charges can apply for several years. Annuities can carry high fees, especially variable annuities with optional riders. Variable annuities are securities regulated by the SEC and FINRA, while fixed annuities are regulated by state insurance departments. The SEC's Investor.gov explains features and questions to ask.
Example
If an insurer offers $600 a month for life for a $100,000 premium paid at 65, you receive back the full premium after about 167 months, or roughly 14 years.
Illustrative numbers only. Your situation will differ.