What is a Life Annuity?

A life annuity is a financial product designed to provide a stream of income to an individual for the duration of their life. This type of annuity is purchased with the intention of providing financial security in retirement by ensuring that payments will continue until the policyholder passes away.

The key aspect of a life annuity is that the payments are guaranteed for the lifetime of the annuitant, which mitigates the risk of outliving one's savings. This characteristic makes it an essential income tool for retirees who want to ensure consistent cash flow.

In contrast, the other options suggest alternative financial instruments or arrangements. For instance, an investment option for early retirees does not specifically define the features of a life annuity. Similarly, a type of retirement account allowing lump-sum withdrawals focuses on flexibility rather than the guaranteed income nature of a life annuity. Lastly, a fund that provides a one-time payment upon retirement differs significantly from a life annuity because it implies a single payout rather than ongoing income for life. Therefore, the defining trait of a life annuity lies in its design to last until the policyholder's death, ensuring financial stability throughout their retirement years.