Variable annuities are tax-deferred retirement plans. Like an individual retirement account, a variable annuity lets you defer taxes on your earnings until you withdraw them at retirement. Unlike fixed annuities, which guarantee you an income for life, returns from variable annuities are, well, variable. You can invest in a number of mutual funds, called subaccounts, within the annuity. Technically, a variable annuity is an insurance product, which is why it's tax-deferred.
Some policies offer step-up provisions, which increase the amount guaranteed at regular intervals.
You can elect to get periodic payments for a set period of time or over your lifetime. The insurance benefit, for example, isn't free. You pay for it through the life of your annuity through an annual fee. You also pay fees for administering the annuity. And each of the investment choices has its own money management expenses.