how does an annuity work 
an annuity is an insurance contract that you buy to provide a steady stream of income during retirement first there s an accumulation phase after that you can begin receiving regular income by annuitizing the contract and directing the insurer to start the payout phase this income provides security because you can t outlive it it varies based on the type of annuity you choose indexed variable or fixed 1an indexed annuity tracks a stock market index such as the s p 500 it doesn t participate in the market itself though your returns are based on market performance they may be limited by a participation rate and a rate cap a variable annuity allows you to choose between various investment options typically mutual funds your payout depends on these investments a fixed annuity is the most conservative of the three with a steady interest rate and a payout that is consistent over time with periodic payments you might also have the opportunity to purchase a rider so that the contract has death benefits as well so your beneficiaries such as your spouse would receive benefits after you die 