An annuity exchanges present contributions for future income. Annuities are a common retirement planning tool for those looking to lower the risk of outliving their savings.
How Do Annuities Work?
In essence, annuities are contracts between a person and a financial institution (usually an insurance company or bank). You pay either a lump sum or monthly premiums to the company, and, in turn, they promise to provide a future stream of income for a specified amount of time (or for the rest of your life).