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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Annuity

Definition:

An annuity is a contract written by an insurance company, which guarantees income for the rest of your life in return for a set of payments up front.

Note the "ann" in the word, which is also coincidentally the opening of the word annual—as in the payments happen annually. These payments either come in one plop or are "accumulated" over time. In theory, it has less risk than just buying a bunch of stocks. But there is a price to pay for that risk mitigation... usually in the form of lower returns to annuitants.