ANNUITIES ANCIENT AND MODERN

The annuity is a financial investment that entitles the investor – the annuitant – to a series of regular payments, usually monthly, over a period defined in the annuity contract. In the case of a simple life annuity, the payments stop upon the annuitant's death, although some life annuities provide for payments over a minimum specified period, like five or ten years, or until the death of the annuitant, whichever is longer.

The life annuity has the special property of entitling the annuitant to a regular income over the rest of the annuitant's life, regardless of how long he or she lives. It thus provides insurance to retired people against living for so long that they outlast their means, while generating substantially higher income than fixed interest investments, and obviating the need to skimp and hoard in old age. The life annuity also imposes discipline on spending in retirement, because it prevents retired people from spending their nest egg all at once. Unlike a bond, or a more conventional financial investment, an annuity normally cannot be resold. In the United States, and most other countries where there is a market for them, life insurance companies are responsible for funding life annuities, although other financial institutions or intermediaries may market them.

Annuities have an ancient lineage. The word annuity is derived from annulus, Latin for annual, and annuities figured in the financial affairs of the ancient Romans.