What is an annuity?

If you've ever asked, "What exactly is an Annuity?" you're certainly not alone. It's one of the most commonly misunderstood financial products, partly because the word "annuity" covers several different types of products rather than just one.

At its most basic level, an annuity is a contract between you and an insurance company. You contribute money to the contract, and in return, the annuity is designed to help accomplish specific financial goals. Depending on the type of annuity, those goals may include growing your retirement savings, protecting your principal from market losses, creating a guaranteed stream of lifetime income, or a combination of those features.

One of the biggest misconceptions is that all annuities are bad. That simply is not true, there are many different types of annuities and just like with everything in life they are not perfect for everyone.

Some annuities are designed to provide a fixed rate of interest. Others are directly invested in the market. Others are linked to the performance of a market index while protecting your principal from market losses. Each type works differently and is designed for different financial goals.

Like any financial tool, an annuity isn't automatically good or bad. The real question is whether the right type of annuity fits your goals, your timeline, and your overall financial strategy.

Some things to consider:
* What are you hoping your retirement savings will accomplish? Growth, Protection, Income, or a combination?
* Have you learned about annuities before forming an opinion on them?
* Do you understand the difference between annuities and other retirement products?
* Could an annuity fit your retirement plan?

Understanding what an annuity is doesn't mean you should own one. It simply gives you the knowledge to decide whether it's something worth exploring as part of your overall retirement strategy.