Question

Define an annuity and discuss why an annuity is so important when buying a car, buying a home or in a retirement plan, especially in the life of people that are not economically wealthy?

Answer 1

Annuity means the stream of cash flow payments. These cash flows are static and fixed by nature. The fixed stream of cash flows is calculated on basis of affordability of an individual.

Person buying car, home, planning retirement has to shell out his or her periodic income towards the respective obligations. These respective obligations are calculated on basis of their periodic income. Payment or annuities are kept reasonably appropriate so that that can be afforded by the individual case, especially for individual who are not economically wealthy.