Websters Dictionary defines annuity as a sum of money payable yearly or at other regular intervals.

When an employee retires after several years of work, the employer offers monetary retirement benefits as a gesture of gratitude for the employees services. Cash balance plans, pensions, profit sharing plans and stock bonus plans are examples of such retirement benefits.

As this monetary package is usually a lump sum, many people find it difficult to manage it wisely. Many people invest the money in something that doesnt yield the deserved revenue. How best can a person utilize the retirement package? Our article addresses this question.

Retirement benefits are like a brand-new car that the employee uses to drive back home, the day he or she retires. The well-being of the employee in the car depends on how well he or she manages the vehicle.

Lets imagine someone named Jane, who retires from an office after several years of work. She likes to invest her retirement benefits in something thatll fetch income on a regular basis. She invests her money in an insurance company by working out a mutual agreement between her and the company. According to the agreement, the insurance company makes periodic payments to Jane. The payments may begin immediately or at some future date, depending on the terms of the agreement. The insurance company sells an annuity to Jane.

Sometimes, even people who have yet to retire go in for purchasing annuities as a means of saving for their `rainy days.

Theres a difference between life insurance and life annuity. In life insurance, beneficiaries collect the insurance amount after a persons death. In an annuity, the person himself collects the annuity amount when he lives, and thereafter his nominees collect a certain amount after his death.

There are two types of annuities: fixed and variable. The rate of return in a fixed annuity is fixed, whereas in a variable annuity it is flexible and changes according to financial market conditions.

There are two options under which an investor can buy annuities: deferred and immediate. In a deferred annuity, payments to the investor begin after retirement. In immediate annuity, the payments can be made before retirement. In some annuities, the investor doesn't need to pay taxes on the income earned by this money until he or she retires.

To put it in a nutshell, annuities assure regular income to the investor in his or her lifetime.