What is an annuity?

An annuity is defined as a series of level payments that are received or paid at regular intervals over a specified period. This structure allows for the distribution of funds or income over time, which is beneficial for budgeting and financial planning. Annuities are commonly used in retirement planning, where individuals might invest a lump sum of money to receive regular payments for a certain duration, such as for the rest of their lives or for a fixed number of years.

The essence of an annuity lies in its regularity and level payments, which distinguishes it from other financial products. This steady cash flow can help individuals manage their expenses or secure ongoing income streams, which can be crucial during retirement or for meeting other financial obligations.

Other choices describe different financial concepts. A one-time payment refers to a single transaction without any subsequent payments, while a fixed amount paid annually suggests specific payments that may not necessarily reflect the regular interval structure characteristic of annuities. A payment plan with variable payments indicates fluctuations in the payment amount, which is not consistent with the fixed nature of annuities.