While people buy insurance because they fear they will die too soon, people buy annuities because they fear they will live too long.

An annuity product provides a regular income to you.

An “annuity certain” provides a regular income to you for a certain period.

A life annuity provides a regular income to you as long as you are living.

You can buy an annuity by a lump sum (usually) or by instalments.

You can also choose to get payments immediately (called immediate annuity) or get payments later (deferred annuity).

The CPF Minimum Sum Scheme (at age 55), which is a scheme for retirement, allows the sum of money to be invested in CPF-approved annuities which are deferred annuity products with payments starting at age 62.

Financial Planning Viewpoint

From the financial planning viewpoint, an annuity is a useful retirement planning product which will ensure that you will not outlive your money, i.e. there will always be money as long as you live!

There are two factors involved in deciding whether you want an annuity – the interest rate used by the insurer and your life expectancy.

You should also note the difference between fixed annuities where the payment amount is fixed at point of purchase. An insurer may pay an extra variable payment depending on their investment performance.

But this is to be differentiated from “variable annuities” where the payments depend on the performance of the investments.