Which of the following best describes an annuity? \( \square \) Deposits are made at random (whenever you have extra money) into an account earning inten \( \square \) A lump sum is deposited into an account earning simple interest. \( \square \) Equal, regular deposits are made into an account earning interest. \( \square \) Alump sum is deposited into an account earning compound interest.
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An annuity is characterized by the concept of making equal, regular deposits into an account that earns interest over time, creating a systematic savings or investment plan. This structure helps individuals build wealth gradually while benefiting from compound interest on their contributions, making it an appealing option for long-term financial goals like retirement. In practice, annuities can come in various forms, such as fixed or variable annuities, which provide stability or growth potential, respectively. They’re commonly used by retirees to ensure a steady income stream, taking the guesswork out of budgeting after leaving the workforce. So whether you’re planning for adventures in your golden years or securing your family’s future, understanding how annuities work can set you on the right financial path!