An annuity is a financial product offered by insurance companies that provides a stream of income payments to individuals, typically during their retirement years. It is a contract between you and the insurance company, where you make a lump-sum payment or a series of payments in exchange for regular income payouts in the future.

An annuity is essentially an agreement between an individual and an insurance company. The individual makes a lump sum payment or a series of payments to the insurance company, which then invests the funds on their behalf. In return, the insurance company guarantees a stream of income to the individual either for a set period of time or for the rest of their life.

The benefits of investing in an annuity include guaranteed income, tax-deferred growth, and protection from market volatility.

The risks of investing in an annuity include the potential for inflation to erode the value of the payments, the possibility of the insurance company defaulting on the payments, and the limited access to the principal.

Annuities are taxed as ordinary income when the payments are received. If the annuity is a non-qualified annuity (not held within an IRA, 401(k), or other retirement account), the earnings portion of the payment is subject to taxation.

Choosing the right annuity depends on your financial goals, risk tolerance, and other factors. It is important to consider the fees, charges, and features of the annuity, as well as the financial strength and reputation of the insurance company.

Annuities may have fees and charges for things like administrative expenses, mortality and expense risk charges, surrender charges, and investment management fees.

Annuity payouts can be received as a lump sum, a series of payments for a set period of time, or as payments for the rest of your life.

Most annuities allow for partial withdrawals, but there may be surrender charges and other fees associated with early withdrawals.

The terms of the annuity contract determine what happens to the remaining balance when the annuity holder passes away. The remaining balance may be paid out to beneficiaries, or it may be forfeited to the insurance company.