An annuity is a contract between you and an insurance company that is designed to meet retirement and other long-range goals, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.

Fixed annuities can be deferred or immediate. The deferred variety accumulate regular rates of interest and the immediate kind make fixed payments - determined by your age and size of your annuity - during retirement. The convenience and predictability of a set payout makes a fixed annuity a popular option for retirees who want a known income stream to supplement their other retirement income.

Fixed annuities pay guaranteed rates of interest, which makes them appealing to investors wary of the stock market's ups and downs. What also makes them appealing are their low investment minimums - usually $1,000 to $10,000 - and the fact that the interest they pay escapes taxation until you pull it out.