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An annuity converts capital into income you cannot outlive

You hand over a lump sum and receive a guaranteed payment for a fixed term or for life. The insurer takes the longevity risk — the possibility that you live far longer than average — which is precisely what a self-managed portfolio cannot eliminate. That transfer is what you are buying, and it is why the payment is not simply the sum divided by expected years.

Ordinary annuity or annuity due

Payments at the end of each period form an ordinary annuity; payments at the start form an annuity due. The difference is one period of compounding, which is small monthly and material over decades. Most calculators default to end-of-period, so a figure that looks slightly off from a quote is often this.

Rates at purchase lock in permanently

The payment is set by interest rates on the day you buy and does not change afterwards. Buying when rates are low fixes a lower income for life, which is why timing matters more here than in almost any other financial product, and why staggering purchases across several years spreads that risk.

Inflation protection costs a lot upfront

A level annuity pays the same nominal amount forever, so at 3 percent inflation it loses roughly half its purchasing power in 24 years. An escalating annuity rising with inflation starts substantially lower — commonly 30 to 40 percent lower — and takes many years to catch up. Which is better depends on how long you live, which is the same uncertainty the annuity exists to handle.

Guarantees and survivor benefits reduce the payment

A single-life annuity pays the most and stops at death. Adding a joint-life provision, a guaranteed minimum period or a value protection feature lowers the payment, because the insurer's exposure lengthens. Every additional certainty is bought with income.

The decision is largely irreversible

Most annuities cannot be unwound once the cancellation window passes. The capital is gone, so it cannot fund an emergency, cannot be inherited beyond any guarantee, and cannot be redeployed if circumstances change. Annuitising part of a portfolio to cover essential spending, while keeping the rest liquid, is the common compromise.