Annuities are an investment sold by insurances companies in which the payout is either in the form of a lump sum or systematically. Normally these would be a good type of investment for retirees or people with a fixed income strategy. There are two types of annuities of which to choose from, and they are fixed and variable annuities.

A fixed annuity involves if you were to give a certain amount of money to your insurance company, they would then in return give you a certain amount back every month at a fixed rate. You could also think of this as a certificate of deposit (CD) in some ways. But unlike a CD, your annuity never matures, it will always gain interest, also you pay no taxes while your money is compounding within the annuity.

A variable annuity sort of acts more like an IRA. You can allocate your annuity into a number of securities, but remember this kind of annuity is subject to market risk. Variable annuities are also known as sub accounts. But what you invest in through your variable annuity, determines its payout.

Now raises the question of who should be involved in annuities. Well, it’s for those who won’t be using a certain amount of money for an average of ten years or more. Also if you think your income will stay the same or perhaps move lower, then you could consider a plan.