With the glory days of corporate pensions in the past, annuities can serve to augment retirement income from other sources such as Social Security payouts and employer-sponsored funds.
A basic fixed annuity is a contract between a person and an insurance company that guarantees the principal invested, a minimum interest rate and set payouts for the life of the annuitant.
Some fixed annuities offer a guaranteed interest rate while fixed indexed annuities credit interest based on the fluctuations of an equity index such as the S&P 500.
An annuity contract can be for varying lengths of time, such as one, five or 10 years, with a payout phase starting sooner or later depending on whether the annuity is immediate or deferred.
Simply put, with an annuity product, you are entering into a contract with an insurance company to create your own guaranteed pension payout.