annuity

Definition

A financial product that promises to pay you regular amounts of money over time, typically used by retirees who want to convert their life savings into a predictable income stream instead of one terrifying lump sum. Insurance companies love selling these because they get to hold your money and invest it while doling it back to you in installments, ideally outliving you so they keep the remainder. It's basically the reverse of a loan: you give them money now, and they give it back slowly, assuming the fine print doesn't contain seventeen escape clauses.

Example Usage

He converted his retirement savings into an annuity that would pay him $3,000 monthly for life, or until he read the contract and discovered the inflation-adjustment clause.

Source: Common financial and insurance terminology

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