When you purchase an annuity you enter into a contract with an insurance company and make either one payment or payments in a series. They agree to return to you a fixed amount of money, either immediately, or after some agreed period of time. Usually, annuities allow you to create earnings that are tax deferred. Many include a death benefit.

With a retirement annuity, you can invest a lump-sum amount just before retirement, when you may receive a large amount from fixed deposits or work benefits. This amount goes towards making the one-time payment for the retirement annuity. The payout usually starts after a few months and gives you an immediate income when you start retirement.

Annuities are a good tool available to you in your retirement planning. Throughout your working years, you are able to deposit a nominal amount into the annuity each month. Throughout the years, these deposits can add up to a large amount of money. Depending on whether you picked a fixed or variable annuity when you opened the account, your money will earn interest or it will be invested in the equity markets or mutual funds.

Upon retirement, the insurance company starts paying you from your annuity. You may recieve these payments for a set amount of time, 20 years, for example, or they may continue for the rest of your life. These payments may either be fixed, if you have chosen a fixed annuity, or if you have chosen a variable scheme, the payments will depend on the activity of your investments.

In contrast, an indexed annuity takes into account the changes in one of the well-known equity indexes. The return will vary based on the changes in the selected index. Typically, there will be a guaranteed minimum return. Equity-indexed annuities combine the features of fixed-return traditional annuities and the equity market, giving the best of both worlds.

Since variable annuities work like securities, they are regulated by the SEC. Fixed annuities are not securities and hence do not come under the purview of the SEC. Since an indexed annuity combines insurance and securities features, depending on the mix of features, it may or may not be regarded as a security. Typically these types of annuities are not regulated by the SEC.