**Annuity** (noun) — A financial product that provides fixed periodic payments to an individual, typically purchased through an insurance company and often used to provide income during retirement.
An annuity is like creating your own pension. You give a lump sum to an insurance company, and they agree to pay you a regular income—monthly, quarterly, or annually—either for a set period or for the rest of your life.
People often buy annuities when they retire, converting their savings into guaranteed income. Instead of worrying about how long your money will last, the annuity provider takes that risk. As long as the payments continue (usually for life), you keep receiving money.
The trade-off is giving up access to the lump sum. Once you've purchased an annuity, you typically can't get that large chunk of money back—it's been converted into an income stream.
⏱ When you'll encounter this term
Annuities appear in estate planning when considering how to provide for yourself in retirement or how to leave income to beneficiaries. Some annuities stop when you die, others can continue paying a surviving spouse or beneficiary.
The main benefit is certainty. You know exactly how much money you'll receive and when. This helps with budgeting and removes the stress of managing investments in older age. The downside is losing flexibility and potentially leaving less to your heirs.
You'll encounter annuities when reviewing retirement options, planning aged care funding, or settling estates where the deceased had annuity income. Different annuities have different features—some include death benefits, others pay out for a guaranteed number of years, and some increase payments to keep pace with inflation.
**Related terms:** [Beneficiary](/dictionary/beneficiary), [Estate](/dictionary/estate), [Life Insurance](/dictionary/life-insurance)
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"Mum's will created an annuity that pays my brother $2,000 per month for life from a trust fund."