Final answer:
An annuity is correctly defined as a series of equal payments made at regular intervals, typically used for retirement income but not exclusively. Annuities can be considered a type of insurance product and can be less risky than stocks and bonds, although they may offer lower returns. Pensions, while similar to annuities in providing fixed payments, can suffer from inflation eroding purchasing power over time.
Step-by-step explanation:
The correct statement about an annuity is that an annuity is a series of equal payments made at regular intervals. Annuities are financial products that provide a stream of income, typically for retirement. They are not limited solely to retirement savings, nor do they always provide a guaranteed income for life, as the payouts depend on the type of annuity and its terms. Annuities can be bought with a lump sum or over time and serve as a safer investment relative to stocks and bonds, with fixed payouts, although they may result in lower total income than riskier investments.
While annuities may be considered a type of insurance product because they can insure against the risk of outliving one's savings, not all annuities guarantee a lifelong income. Some may provide income for a set period of time, while others may offer variable payouts. Furthermore, private market options for retirement savings, such as 401(k)s, can include investments in stocks, bonds, and annuities—all of which offer different degrees of risk and potential returns.
Pensions are similar to annuities in that they offer fixed annual payments, and economists refer to them as "defined benefits" plans. However, the challenge with pensions and annuities with fixed payments is the potential loss of buying power over time due to inflation, especially if the payments do not adjust to match the rising cost of living.