What is an Annuity

There are different types of annuities. In finance theory, the term annuity refers to any terminating stream of fixed payments over a specific period of time. This term is used most often in discussions of finance usually referring to the valuation of the stream of payments considering time value of money and interest rate and future value.

In finance, annuity refers to a financial product that is made available through financial institutions for individuals where funds are accepted and upon annuitization, a stream of payments are made to the individual at specified point in time in the future. These types of products are used quite often as a means of securing a steady income for those in their retirement years.

Annuities can be structured in a variety of ways. Some of the variations can be the duration of time that the payments from the annuity can continue. For example, an annuity can be created so that, upon annuitization, an individual can continue to receive payments as long as either he or she or his or her spouse is alive. Or, you can structure annuities to make payments for a specific period of time, for example 30 years.

You can also structure annuities to provide either fixed or variable payments. For those wanting variable payments, it can allow for higher payments if investments in the annuity fund are doing well. Conversely, however, if the annuity fund is not doing well then the payments will be less than a fixed plan.

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