Legal Definitions - retirement annuity

A retirement annuity is a financial product specifically designed to provide a steady income stream during an individual's retirement years. It involves making contributions, often over a working lifetime, in exchange for guaranteed periodic payments that begin once the person retires.

A retirement annuity is a financial product specifically designed to provide a steady, guaranteed stream of income to an individual during their retirement years. People typically purchase a retirement annuity, often from an insurance company, either with a single lump sum or through a series of payments made over time. The payments from the annuity usually begin at a specified future date, such as when the individual retires, and can continue for a set number of years or for the remainder of their life. Its primary purpose is to ensure a predictable and reliable income source after leaving the workforce.

• Example 1: Sarah, a self-employed graphic designer, wants to ensure a stable income stream when she eventually stops working. For the past fifteen years, she has regularly contributed a portion of her earnings to a deferred retirement annuity. When she turns 65 and retires, the annuity will begin paying her a fixed monthly amount for the rest of her life, supplementing her other retirement savings.

  Explanation: This illustrates a retirement annuity because Sarah is making payments over time to a financial product that will provide her with guaranteed income once she retires, helping her plan for financial security in her later years.

• Example 2: Mark works for a large corporation that offers a defined benefit pension plan. Upon his retirement, the company's pension administrator converts his accumulated pension benefits into a retirement annuity. This annuity then pays him a fixed monthly amount for the rest of his life, ensuring he has a consistent income source after leaving employment.

  Explanation: This demonstrates a retirement annuity being used as the payout mechanism for a pension plan. Mark receives a guaranteed, regular income stream specifically for his retirement, fulfilling the purpose of a retirement annuity.

• Example 3: After selling his small business, David, who is 62 and planning to retire soon, has a significant sum of money. He uses a portion of these proceeds to purchase an immediate retirement annuity from an insurance company. This annuity begins paying him a fixed monthly income starting the following month and will continue for the rest of his life, providing him with predictable income without needing to manage the lump sum himself.

  Explanation: This example shows a retirement annuity purchased with a lump sum, providing immediate and guaranteed income for retirement. It highlights how such an annuity can convert a large sum into a predictable income stream for an individual's post-work life.