An income annuity is an investment vehicle that distributes money on a set schedule, often monthly.
Often, an income annuity is part of a retirement or pension plan to ensure stable income once a person stops working. While the retiree was working, they paid into a fund that invested in income annuities. Afterwards, the return on the investment is distributed to replace the retiree's income.
The nature of an income is dependent on several factors -- your age, the term length, the annuity's price, and any other specifics of the contract. Investors looking for income annuities should determine how much income they will require and for how long before investing in an annuity.
Income annuities can pay out at either fixed or variable rates. Sometimes, even if the annuity is fixed, there may be a provision for a higher return if a particular benchmark index performs well.