Annuity principal

The annuity principal is the sum of money you use to buy an annuity and the base on which annuity earnings accumulate.

If you're buying a deferred annuity, you may make a one-time - or single premium - purchase, or you may build your annuity principal with a series of regular or intermittent payments.

For example, if you own an annuity in an employer-sponsored retirement plan, you add to your principal each time you defer some of your income into your account - typically every time you're paid.

When you buy an immediate annuity, you commit your annuity principal as a lump sum, and that amount is one of the key factors that determines the amount of your annuity income.