An annuity is essentially an agreement between you & an insurance company in which you make either a lump-sum payment or series of payments over time, & in return, you receive regular disbursements, beginning either immediately or at some point in the future (usually retirement) that are often designed to last for a specific period of time, or for the rest of your life. Funds for all non-immediate annuities accrue on a tax-deferred basis & can only be withdrawn without penalty after age 59½. Aside from the differences in when & for how long you receive your annuity payments, as previously mentioned, there are 3 main ways annuity funds can accumulate, each with their own unique trade-offs.

Most annuities will also have the ability to add additional benefits & features called "riders" but they will usually have an extra cost associated. Additionally, if annuity owners want or need to withdraw funds in the first handful of years, they often times can be subject to a surrender charge.