What is an annuity?

An annuity is defined as a series of equal payments made at regular intervals over a specified period. This definition highlights that annuities are structured financial products designed to provide a consistent income stream, often utilized in retirement planning or as part of certain investment strategies.

The regular intervals can be monthly, quarterly, annually, or over another fixed timeframe, making it a flexible option for individuals seeking predictable cash flows. Annuities can take various forms, including fixed or variable, but the key characteristic that qualifies them as annuities is the fact that the payments are of equal amount and occur at regular intervals.

Understanding annuities is important for effective financial management, as they are commonly used in situations where individuals aim to secure a steady income over time, such as retirees or investors looking for long-term financial stability.