Annuities work through individuals or investors making payments to an insurance company or financial institution as a lump sum or regular premiums. The money contributed is invested by the company to accumulate and grow over time, either on a tax-deferred basis for deferred annuities or for immediate payments with immediate annuities. There are different types of annuities, such as fixed, variable, and indexed annuities, each offering unique features and potential returns. The annuity provides a reliable income stream during the payout phase, which can be for a specified period or the annuitant's lifetime. However, annuities may come with fees and surrender charges if funds are withdrawn prematurely.