Annuities basically come in two "flavors" - fixed annuities and variable annuities. A fixed annuity is basically like a Certificate of Deposit, only instead of it being issued by bank, as a CD is, it is issued by an insurance company. Though they behave like CDs, Fixed annuities tend to offer higher returns then typical bank CDs.

With a fixed annuity, you receive a fixed payout, either in accumulated interest, or fixed payments after you retire. For many, the security of knowing how much they will have by retirement, or what their monthly or annual annuity payment will be - is the main appeal of fixed annuities

Other Advantages of Fixed Annuities

• Like all annuities the tax is deferred on what you pay in, until you take money out
• Your rate of return is not tied to the volatility of the stock market or other exchanges
• Low yearly minimum investments

There are disadvantages to fixed annuities as well. In some plans the initial rate is only fixed for the first few years, and then it drops. If you are not happy with the new rate, and choose to opt out - you may face stiff surrender charges. Even if you purchase an annuity with a fixed rate for the entire term of the contract, understand that indeed that rate is fixed. Meaning it is locked in and does not adjust for inflation.

So how do you know if a fixed annuity is right for you? If you have never been a risk taker, and you are unsure if your other savings or retirement plans will be adequate in seeing you through all of the expenses of your retirement, then a fixed annuity is probably a good choice for you. You will be able to sleep easier at night knowing exactly how much you will receive, and be able to plan accordingly.