Annuity

An annuity is a contract between an individual and an insurance company designed to provide a steady income stream, typically in retirement. The individual pays into the contract, either as a lump sum or through regular contributions, and the insurer pays out over time according to the agreed terms. Annuities can be purchased directly or through an employer.

Types of annuities

Immediate annuities do what the name suggests. The individual makes a payment, and the insurer begins paying out almost straight away, usually within a short period of receiving the funds.

Deferred annuities delay the payout to a future date. The individual chooses when payments will begin, which might be 15 or 25 years down the line, and those payments then continue for life. This suits people who are still working and want to build a retirement income that kicks in later.

Qualified employee annuities are offered through an employer. The employer runs a qualified annuity program, and employees can participate through their workplace rather than arranging a contract independently.