An annuity is a contract between you and an insurance company. You give the insurer money — either all at once or over time — and in return the company agrees to provide value back to you, frequently as a stream of payments that can last for a set period or for the rest of your life.
Annuities come in several types (fixed, fixed-indexed, immediate, deferred) suited to different goals. Any guarantees an annuity offers are obligations of the issuing insurance company, subject to that company's claims-paying ability, and are not FDIC insured.
Example
A 66-year-old moves $200,000 from a maturing CD into a fixed annuity to create a predictable monthly check that supplements Social Security.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.