What is an annuity?

An annuity is a contract, typically taken out with an insurance company or bank, in which someone pays upfront for the contract, the money is then often invested in a tax-deferred way, and then the financial institution is under contract to make regular payments to the contract holder, often until their death. Many annuities, however allow someone to make a lump sum withdrawal, thus if used canceling out the contract (meaning they will no longer be regular payments).

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