An annuity is a financial product sold usually by insurance companies to people who wish to make sure that they are going to have enough money to last them for the rest of their lives. For many individuals, this may mean a pension-type annuity called an immediate lifetime annuity.

An annuity is a financial product that straddles the fence between insurance and investment. With an annuity you exchange a sum of cash today -- typically from your retirement nest egg right as you begin to retire -- for consistent periodic payments in the future.

Although annuities may still serve as tax deferred investments, Pechter wrote Annuities for Dummies with an eye to baby boomers who are reaching their retirement years without pensions and with limited payments from Social Security. He contends that annuities are the best way to convert savings into lifetime income.

Some annuities, called variable annuities, offer rates of return pegged to something like the stock market. Other annuities, called fixed annuities, offer a steady rate of return or perhaps a rate of return that adjusts for inflation. Some annuities charge a small fortune in fees.

An annuity is a lifetime income guarantee that you purchase from an insurance company as a way to reduce the risk that you run out of money in retirement. Just like you insure your home, you can insure your longevity by passing on the risk that you outlive your savings to an insurance company.