Definition
Annuity is a financial agreement in which a series of equal payments are made at regular intervals over a specified period of time. Annuities can be used for retirement income, investments, or structured settlements.
Why It Matters
Annuities provide predictable cash flow for individuals and institutions, helping with budgeting, retirement planning, and risk management. They can be fixed or variable, depending on interest rates, investment performance, or other terms.
Example
A retiree purchases an annuity that pays $1,000 per month for 20 years. Each payment is equal, giving the retiree steady income and protection against outliving savings. The total received over the period can be calculated using present or future value formulas.