Annuity
Also called: lifetime income, pension annuity
A paycheck you buy — you hand over a lump sum and receive a guaranteed income for life.
You give an insurer a lump sum. They pay you a fixed amount every month for as long as you live.
What you are buying is not a return but the removal of a specific fear: outliving your money. That risk is genuinely hard to manage alone, because nobody knows how long they will need the money to last, and planning for the average means half of people plan short.
The trade is real and worth stating plainly. You give up flexibility — the lump sum is gone and cannot be reached for an emergency. You usually give up anything to leave behind, unless you pay extra for a guarantee period. And you generally give up the higher expected return of staying invested.
In exchange the income arrives whether markets crash or you live to a hundred, which removes sequence risk entirely.
A common middle path is annuitising enough to cover essential costs — housing, food, utilities — and leaving the rest invested for flexibility. Guaranteed floor, flexible remainder.
Rates depend heavily on age, health and prevailing interest rates, and the decision is usually irreversible. Shop it properly.
Words on this page
- Risk — The chance that an outcome is permanently worse than you needed it to be.
- Market — All the buyers and sellers of an asset together — nobody sets the price from above.
- Crash — A steep fall across the whole market at once, rather than one company stumbling.
- Sequence risk — The danger that poor returns arrive early in retirement, when you are withdrawing rather than adding.
- Interest — The price of using someone else's money — paid by borrowers, earned by lenders.
Related terms
Covered properly in Learn.
This term appears in the glossary of The Quiet Fortune, Volume III.