Indexed Annuity

Annuities involve you shelling out a chunk of money now in return for regular income at some point in the future. You write a big check to an insurance company now, and in 20 years, the company starts sending you small monthly checks.

Usually, the amount you get in return is spelled out in the initial contract. You pay $100,000 today. They start sending you $500 a month when you turn 67.

That structure represents the usual setup. An indexed annuity tweaks the normal arrangement by tying the payout to the performance of some index, often a broad measure of the stock market, like the S&P 500.

The indexed annuity splits the difference between the safety of a traditional annuity (where you guarantee yourself a steady income) and the potential upside of investing in the stock market. You have an annuity, but you also have the possibility of making additional payback if the stock market does well.