Designed for more conservative investors and those planning for retirement.

Fixed annuities allow you to protect assets from market volatility. These contracts with an insurance company often pay you an agreed-upon interest rate for a guaranteed number of years. There are tax deferral advantages, a death benefit, the potential for lifetime income and the extra safety and security of knowing exactly what to expect.

• Here's how a fixed annuity can work. Say, for example, the initial terms pay 5% for five years. When the five years are up, you can continue with the same carrier with a new interest rate or move that money to a new carrier with a new rate through an insurance contract exchange.
• Withdrawals may be subject to surrender charges during the early years of the contract, and funds withdrawn from an annuity prior to age 59½ can be subject to a 10% IRS penalty. However, annuities may offer more access to your money than a share certificate or CD through special withdrawal features.
• Unlike a share certificate, your earnings compound on a tax-deferred basis. All the funds, including those that would be used to pay taxes, are allowed to remain in the account to grow for the future.
• While fixed annuities are very secure, they're not insured by the National Credit Union Share Insurance Fund (NCUSIF) or its counterpart, the FDIC. They are guaranteed by the company that offers them, which is why it's important to understand the ratings of the issuing company.

The potential for market upside without downside risk.

Index annuities offer the chance for higher returns based on market increases, but with the stability and principal guarantees more traditionally associated with fixed annuities. The interest you earn follows an index. Most use the S&P 500, Dow Jones or an international index. When the index gains, you can too. But when that index loses, your annuity remains protected.

• Similar to fixed annuities, you receive a minimum income guarantee and protection of your principal. You get the same tax advantages and death benefit for loved ones, and the same potential charges for withdrawals in the early years. But with its added market growth potential, if you're saving for or living in retirement, an index annuity may make sense for you.
• All the market-based gains you make from previous years can be locked in and never go down.
• While you're protected from losses, some index annuities may put an upper limit, or cap, on the gain you can make in a given year. If the index rises 6% and you have a 5% cap rate, you'll be credited 5%. These contracts may also allow the owner to participate in only a portion of the index increase in return for the guarantees.
• While the "bottom" for most market investors can be all the way to zero, with an index annuity, your principal is protected from the downside.

For investors who can handle the ups and downs of the market.

Investors with longer time horizons and the ability to withstand market fluctuations often choose variable annuities. These annuities have two phases: an accumulation phase (where you make periodic payments) and a payout phase (where you get a guaranteed minimum payment). But with a variable annuity, your accumulation and your payout can vary depending on the performance of underlying funds, referred to as "subaccounts."

• During accumulation, you make purchase payments and allocate your money among various investment options as you see fit. These annuity subaccounts let you move money around to different types of investments and different money managers. There are typically no extra fees for these moves.
• A quick example: You purchase a variable annuity with an initial payment of $10,000. You put half in a bond fund and half in a stock fund. The stock fund has a 10% return, the bond fund a 5% return. At the end of the year, your account has a value of $10,750 (minus fees and charges).
• Like other annuities, your money grows tax-deferred until you take a distribution. All the funds, including those that would be used to pay taxes, are allowed to remain in the account to grow. Keep in mind that withdrawals may be subject to surrender charges or an early withdrawal tax penalty.
• Today many variable annuities offer "riders" that can be added for a fee to provide you with extra guarantees. Depending on the carrier, you may have options to guarantee the ability to make withdrawals or guarantee the return of your principal, regardless of the performance of your underlying investments.
• When the time is right, you can convert your current account value into a stream of income. And you'll have options at that time to guarantee your payouts for life.

One lump sum can provide you steady income for life.

Purchasing a payout annuity – sometimes called an immediate annuity – is like buying a regular check for yourself. Payments start right away, usually within 30 days of your purchase, and can last as long as you live. There are a variety of payout options. You may choose the security of a guaranteed monthly income, or the potential for income to grow based on the variable investment returns of the market.

• You purchase a payout annuity with a single payment, which means you decide up front what you have to spend and what you need in return. You typically can't add money to the annuity later on.
• You can often choose to be paid monthly, quarterly, semi-annually or annually – whatever works best for you.
• You may have options to guarantee income for a set period of time or for as long as you live. Your payout can be a fixed amount or adjusted for inflation. And there are ways to guarantee an income for you or both you and a spouse. You'll even have choices to make sure that no matter how long you live, you or your beneficiaries will receive your principal back.
• For payout annuities that aren't part of a retirement plan like an IRA, each payment you receive will be part return of principal and part earnings. You'll pay taxes when you receive the payment, but only on the earnings portion. That helps keep taxes down.