Annuities
An annuity, or insurance for retirement, represents a contract between an individual and an insurance company, that requires the issuer to make payments to the individual either immediately or in the future. Someone can purchase an annuity either as a single payment or as a series of payments. Annuities offer a guaranteed income stream, making them especially appealing to retirees, or to people who want to transform an important lump sum into a uniform cash flow (eg: people who have won the lottery, people who have won in a trial, etc.).
An annuity is composed of two parts, the accumulation phase, and the annuitization phase. During the accumulation phase, the annuity is being funded and there are no payouts. After this, the annuitization starts, when the owner of the annuity starts getting payments.
Before deciding to acquire an annuity, someone has to keep in mind that the lump sum put into an annuity is illiquid and it is also subject to withdrawal penalties if the surrender period has not passed. The surrender period represents the amount of time the investor must wait before withdrawing funds from an annuity without penalties. As a rule of thumb, the longer the surrender period, the better are other terms of the annuity.