What Is an Annuity Plan?


Quick Answer

Annuities are plans sold by financial institutions designed to grow funds from an individual and then make out a string of payments to that individual at a later time, usually after retirement, explains Investopedia. The purpose of an annuity is to eliminate longevity risk, or the risk of outliving assets.

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Full Answer

There are four basic types of annuities: variable, fixed, immediate income and modified guaranteed. Variable annuities help to increase income for retirement and last a lifetime, according to Prudential. There are many investment options with this plan that help with preparation for retirement.

Fixed annuities grow at a steady rate of interest with tax deferrals for those who are more conservative. Immediate income annuities involve a one-time purchase after which payments begin, and modified guaranteed annuities give tax-deferred earnings with a long-term fixed rate.

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