What does annuity mean?
An annuity is a financial product that converts a sum of money into a series of regular payments, typically lasting for the rest of the owner's life. Most commonly purchased from a life insurer, an annuity is often used at retirement: a saver hands over their accumulated pension savings and receives a guaranteed income in return, removing both the risk of outliving their money and the burden of managing investments. Annuities vary widely — some pay immediately, others begin years later (deferred); some offer fixed payments, while others rise with inflation or fluctuate with market performance. The word also has a broader legal sense, describing any entitlement to receive a fixed sum periodically. Rooted in the Latin 'annus', meaning year, it entered English from Old French in the medieval period. Because it sits at the heart of retirement planning, longevity risk, and estate law, "annuity" remains one of the more consequential terms in personal finance vocabulary.
A contract or product, usually with an insurer, guaranteeing regular payments to the holder for life or for a specified period, in exchange for a lump sum or series of premiums.
"She bought an annuity at sixty-five to secure a reliable income throughout retirement."
Although historically tied to yearly payment, most modern annuities pay monthly.
A legal right or grant to receive a fixed sum of money at regular intervals, typically annually, as under a will or settlement.
"The charity was endowed with an annuity of two hundred pounds per annum under the founder's trust deed."
The standard plural follows the regular -ies pattern. "Annuities" is common in financial contexts where multiple products, contracts, or holdings are being discussed collectively.
"Insurers offering lifetime annuities saw strong demand as interest rates rose."
The Latin root 'annus' means 'year' — so when you buy an annuity, you are quite literally buying yourself a yearly income with a word that's been doing this job since ancient Rome.
Reviewed by Deb Chak, Editor. AI-assisted content curated by RJS Tech Solutions LLP.
Etymology of annuity
Annuity derives ultimately from the Latin 'annus', meaning year, via 'annuus' (of or belonging to the year) and the related term 'annuitas'. The concept itself is ancient: the Romans sold contracts resembling life annuities as early as the first century CE, notably through the jurist Ulpian's famous mortality tables. The word reached English by way of Old French 'annuité' during the Middle Ages, when annuities were widely used to raise funds and settle bequests, and it became firmly established in English financial and legal usage by the sixteenth century. It shares its root with words such as annual, biennial, and centennial, all built on that same notion of recurring years.
Related word forms
How annuity is actually used
"Annuity" belongs primarily to formal and financial registers — it appears most often in retirement planning, insurance contracts, and legal documents rather than everyday conversation. In British English it is strongly associated with converting a pension fund into retirement income; in American English the term covers a wider range of insurance-based investment products, including variable and indexed annuities. Note that although the etymology suggests annual payment, modern annuities very often pay monthly or quarterly; the name reflects the historical form rather than the current frequency.
Easily confused with annuity
An annuity pays out over a fixed period or the recipient's lifetime, while a perpetuity is designed to pay out indefinitely, forever.