An annuity is a contract with an insurance company that is specifically designed for retirement purposes. When you purchase an annuity, you make a payment to an insurance company that, in turn, agrees to pay out an income stream or a lump-sum amount at a future date. Annuities are primarily designed to deliver a predictable income stream that can be used to cover essential expenses, such as housing and food, in retirement. However, some annuities offer downside protection from market volatility by guaranteeing all or part of your original investment while still participating in market gains.