What Is An Annuity?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

An annuity is a product that is sold by financial institutions to investors. The investors pay in a certain amount of money over a period of time, and then at a given time (called annuitization), the annuity starts to pay out money to the investor for a given period of time.

The firm using the annuities uses the money investors pay in to grow the funds in order to pay for the cash payments in the future. This is similar to a mutual fund, except that the returns are guaranteed.

Investors wishing to set aside money for their retirement frequently use annuities. The individual investor is assuming they will live long enough for the annuity to pay more than they invested whereas the firm is betting on the fact that the investor will claim less than they paid in.

Related Terms

Return to Finance Dictionary

Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.