An annuity is a contract between you and an insurance company. You pay in a lump sum or a series of payments, and in exchange, the insurer agrees to pay you money back — either starting right away or at some point in the future, often structured as income you can’t outlive.

The basic problem annuities solve

Retirement used to come with a pension that paid a set amount for life. Fewer workers have that today, which means more retirees are responsible for turning their own savings into an income stream that lasts as long as they do. Annuities exist to solve exactly that problem — converting a pool of money into guaranteed, predictable income, backed by the claims-paying ability of the issuing insurance company.

The main types, briefly

• Fixed annuities credit a set interest rate, similar in spirit to a CD.
• Fixed indexed annuities credit interest based partly on the performance of a market index, with protection against index losses.
• Variable annuities let you invest in sub-accounts similar to mutual funds, so your value can go up or down with the market.
• Immediate annuities begin paying income right away; deferred annuities grow for a period before payments start.

What annuities are generally not

Annuities are not bank products and are not FDIC insured — guarantees are backed by the issuing insurance company rather than a government agency. Most also carry surrender charges for withdrawing more than a set amount during an early surrender period, so they’re generally best suited for money you don’t need immediate, full access to.

Because there are many product types and features, the right fit depends entirely on your specific goals — guaranteed income, principal protection, growth potential, or some blend of all three.

This article is educational and general in nature. It isn’t personalized financial advice. All guarantees are subject to the claims-paying ability of the issuing insurance company.