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An Annuity is a term for describing a financial product that is a series of consecutive payments on pre-determined intervals. Annuities are primarily used by retired individuals seeking to have a fixed income during their retirements, but annuities can be used by anyone that qualifies with a financial institution. Two of the most common types of annuities are pensions and Social Security.
Financial institutions offer annuities after a certain period of time has passed in control of capital from the annuity purchaser. After receiving capital from the person purchasing the annuity, the financial institution uses that capital to make investments. The financial institution keeps the gains or losses associated with investments they made using the annuity purchasers money, and start to pay pay annuity purchaser a fixed income on a pre-determined basis at a later date.
Their are two phases of annuities, they are the accumulation phase and the annuitization phase. The accumulation phase refers to the period of time that an annuity purchaser is funding their annuity with their financial institution. The annuitization phase refers to the period of time that the financial institutions is paying the annuity purchaser on a regular basis.
