An annuity is a contract with an insurance company that provides for a series of payments to be received for a fixed or variable amount of time. Annuities can be purchased through a 401(k) or 403(b) plan allowing your funds to grow tax-deferred until withdrawal. Most experts advise against purchasing an annuity just to shelter earnings unless you have completely "maxed out" your other options such as IRAs, 401(k)s, 403(b)s, Keoghs, and SEPS. It is difficult to determine the real rate of return from an annuity because there are purchase and redemption charges that can be high. The high first-year interest rate which you are quoted may drop one or two points in the following years, greatly reducing your return.

Annuities are not insured. Therefore, the money you invest is only as safe as the company you invest in. Be sure that the insurance company you purchase the annuity from has a high rating for safety. If the insurance agent spends an hour promoting the investment value of the annuity and ten minutes covering the insurance benefits, be careful!