ELI5: What is an annuity?

An annuity is like getting a regular allowance from a big pile of money you saved up.

Imagine you have a big piggy bank full of coins, like all the money you saved for retirement. An annuity is a special deal where you give that piggy bank to a company, and they promise to give you a certain amount of money back every month (or year) for a set time, or even for the rest of your life!

Think of it like this:

• You give the company your principal, which is all the money in your piggy bank.
• The company invests your principal and uses the earnings (and some of the principal itself) to pay you regular payments.
• These regular payments are the annuity payments.

• Guaranteed Income: You know exactly how much money you'll get, and when. This is helpful for planning your expenses.
• Retirement Security: It helps make sure you won't run out of money when you're older and not working.
• Professional Management: The company handles investing your money, so you don't have to worry about it.