A series of regular periodic payments comprising principal and interest. An annuity is a contract providing for a series of payments. In the case of retirement, an annuity is usually purchased from an insurance company who then pays the purchaser a monthly amount while still alive. Annuities may have more complicated features such as indexing, guarantee periods and benefits payable to a spouse or other beneficiary after death.
When an individual purchases an annuity, they usually pay a lump sum from their RRSP, or other source of funds, to an insurer. The insurer then takes this (premium) and divides by an annuity factor based on mortality, current interest rates and payment features.