What Is an Annuity and How Does It Work?

An annuity is a contract between you and an insurance company. You contribute money — either in a lump sum or over time — and the company guarantees a future stream of income, typically in retirement.

Annuities are one of the few financial tools that can provide income you can't outlive. That makes them particularly useful for covering essential expenses in retirement so you're not entirely dependent on market performance.

There are several types: fixed, indexed, immediate, and variable. Each works differently, with different trade-offs between growth potential, downside protection, and access to your money.

Annuities aren't right for every situation, but used correctly they're a powerful complement to Social Security, pensions, and investment accounts. We'll help you decide whether one fits your retirement plan.