An annuity is a financial product that allows you to receive money at regular intervals (monthly, quarterly, semiannually, or annually) , every single year, until your death or for a certain period of time. So an annuity can be purchased today, and it can then give you money at a future date, or it can even start immediately. And that means that you will have a guaranteed amount of money coming in at regular intervals, similar to a pension

For a good demonstration of annuities, we can look to the TV show Boardwalk Empire, which is a period drama about Prohibition-era crime in Atlantic City. One of the main characters is an older guy who has a younger girlfriend (early 20s), and she’s concerned about who will take care of her if something happens to him, so he buys her an immediate annuity, which starts right away. So this is money she will receive regularly for for the rest of her life. He spends a lot of money to purchase this annuity, (we don’t know how much it is in the show and it would depend on a bunch of different factors that just don’t make for great television!). He tells her that she doesn’t have to worry, and she’ll be taken care of for as long as she lives, regardless of whether he’s around.

But, spoiler alert, she walks into a building that blows up, and she’s killed. The insurance company made a bunch of money that day, because they sold this annuity to this gangster, and he spent a lot of money on it. And they never had to pay out on it, because as soon as that transaction was done, she ended up not living for it.

So, annuities are sold by insurance companies. To get one, you would pay a lump sum amount, in exchange for receiving monthly payments right away or in the future. And how much you pay upfront doesn’t necessarily equal how much you’re going to get in the future. That will depend on which insurance company you’re going with and what kind of annuity you’re getting (as well as how long you live!). Ultimately, annuities can be really complicated in terms of rules and costs, so it can be helpful to have a financial planner’s help to determine how much you can afford to spend to receive a guaranteed amount of money, as well as what you need and don’t need in terms of coverage.

Annuities can be great if you expect to live a long time, and can reap the benefit of receiving money at regular intervals for many years, making it worth the upfront cost. . But, annuities may ultimately provide you with a lower rate of return than if you invested in another way (such as keeping your money in an investment portfolio made up of stocks, bonds, or mutual funds). Annuities are expensive. Insurance companies sell them because they can make money on them, and a lot of people buy products like this that aren’t necessary for them or don’t fit into their overall financial plan. They are advantageous for a small group of people, but it is important to figure out if you’re in this group. There are other ways to ensure a secure financial future without annuities. So, before you purchase one, we recommend you do some extra research, or chat with a financial professional (someone other than the person selling the annuity!)

One reason you might consider annuities if you’re Childfree is that it can be a nice tool to get access to long-term care, which is something that’s really important to consider. Hybrid annuities, for example, can come with a long-term care plan attached.  The challenge is that you may be able to get a better deal by purchasing a stand alone long-term care insurance policy.  The bottom line is that it’s worth discussing annuities with a fee-only financial planner if you’re Childfree and wondering how to pay for long-term care.