What Exactly Are Annuities? 
Are we talking about fixed or variable ? I 'll assume fixed , so here goes ... Annuities , for a 5 year old : Do you know how a CD works ? An annuity is the same thing , just with a longer time until you get your money back . CD 's are issued by banks , Annuities are issued by insurance companies . Interest from CD 's are taxed each year while interest from annuities are not taxed until you take the money . Does this sound like a retirement account ? Yup , the IRS thinks so too . If you take money out before they want you to , you 're penalized 10 % -LRB- stupid government -RRB- . The longer the term , the higher the interest you should expect . CD for 12 months = low interest Annuity for 10 years = slightly more interest . Were you referring to variable annuities ? Think mutual fund account with higher fees -LRB- generally -RRB- . Now , riders ... no 5 year old would ever understand these ... except income riders . Here 's the deal : You get X percent of the balance of the account , paid to you for the rest of your life ... even if the account balance is $ 0.00 . What ? I still get paid when there 's no money left ? Yup ! That , my 5 year old friend , is an annuity -LRB- with an in come rider -RRB- . There 's a lot more to it than that . I could write a book on annuities -LRB- and many people have -RRB- . Make sure you work with a competent advisor who can speak your language . If they keep babbling about terms you do n't understand , move on and find someone else to work with . 