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Looking for fixed-income investments? An annuity may be a suitable option—and not just for retirees. Learn more in the MoneySense Glossary.
An annuity is a financial product that provides a guaranteed stream of income to the purchaser at set intervals, typically monthly, quarterly, semi-annually or annually. Annuities are available from insurance companies, agents and brokers.
Payments may continue for a specific number of years (term-certain annuity) or for the life of the holder (life annuity). Payments might begin right away (immediate annuity) or at a future date (deferred annuity). Once you’ve bought an annuity, you can’t change the terms of the contract or get your money back, and the regular payments are locked in.
Annuities are most often used as a strategy to generate retirement income, but you can also use an annuity to fund post-secondary education expenses, charitable donations and other goals. Most people who buy annuities are seeking peace of mind, leaving the investment decision-making up to the annuity provider, which is responsible for making the payments.
If the insurance company fails, your annuity payments are protected up to a certain amount by Assuris, a consumer protection agency: 100% for monthly payments up to $2,000, and 85% for monthly payments above $2,000.
Example: “Bruce bought a life annuity that would pay him $1,000 a month for the rest of his life so he would have regular income to supplement his government retirement benefits.”
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