Annuity
A contract with an insurer that converts a sum of money into a stream of income, often for life.
What does annuity mean?
You pay a premium and the insurer pays you back over time — immediately or after a growth period. Annuities remove longevity and market risk in exchange for giving up control of the principal, and fees vary widely by type.
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Related terms
Annuity — frequently asked
How are annuity payouts taxed?
It depends on how the annuity was funded. In a qualified (pre-tax) annuity the entire payout is taxed as ordinary income; in a non-qualified one only the earnings portion is taxed, since you already paid tax on the principal you contributed.
Are annuities a good investment?
Annuities are insurance products, not investments — their strength is guaranteed lifetime income, which can hedge the risk of outliving your savings. The trade-offs are fees, limited liquidity and surrender charges, so they suit part of a plan, not all of it.