Annuity Definition

In the most basic sense, an annuity is a sum of money paid at a scheduled interval. It is most often used in personal finance to describe a type of investment that receives regular deposits throughout a person’s working career and then distributes regular compensation to the person during retirement. In this sense, an annuity differs from an investment instrument such as an IRA because the annuity will continue scheduled payments to the retiree regardless of how long he or she lives and independent of how much money they contributed.

The term annuity has been utilized to such a degree, however, that it has become nearly meaningless. In other words, a wide variety of different types of financial instruments are described as an annuity.