What is an Annuity?
An annuity is a financial product that consists of a series of equal or nearly equal periodic payments or receipts. These can be utilized in various financial strategies, often for retirement planning.
Types of Annuities
- Annuity Due: Payments or receipts occur at the beginning of each period.
- Ordinary Annuity: Payments or receipts occur at the end of each period.
How Can Annuities Benefit You?
Annuities provide a steady stream of income, making them a popular choice for retirees seeking financial stability.
Example of an Annuity
Imagine you receive $100 each year for the next 5 years. This constitutes a $100 five-year annuity.
Examples of Annuities in Action
- Retirement Planning: An individual invests a portion of their savings into an annuity to receive regular income after retiring.
- Estate Planning: A family uses an annuity to ensure regular financial support for a loved one.
Frequently Asked Questions
1. What is the difference between an annuity due and an ordinary annuity?
- An annuity due involves payments or receipts occurring at the beginning of each period, while an ordinary annuity involves payments or receipts at the end of each period.
2. How can an annuity benefit my financial planning?
- An annuity can provide a predictable and stable income stream, beneficial for long-term planning, especially during retirement.
3. Are there different types of annuities?
- Yes, in addition to annuity due and ordinary annuity, other types include deferred annuity, fixed annuity, and variable annuity.
Related Terms: Annuity Due, Ordinary Annuity, Deferred Annuity, Fixed Annuity, Variable Annuity.
