Annuity is a contract between you and an insurance company where you pay the insurer a specified amount and, in return, receive regular payments either for life or for a stated period of time. The money will grow on a tax-deferred basis until you begin receiving it, usually after age 59 1/2. At that point, you can continue to postpone the tax bite by ""annuitizing"" the money -- in other words, converting the assets into a monthly stream of income.
There are two basic types of annuities: fixed and variable.
With fixed annuity, the premiums you pay will be invested in fixed-rate instruments such as bonds or mortgages.
A variable annuity similar to a tax-deferred mutual fund. Your premiums could be invested in individual stocks and mutual funds to real estate and certificates of deposit. Variable in the meaning of your return will vary depending on the success of the portfolio.