Assess your personal situation and follow some basic guidelines for determining if an annuity is right for you. After you decide to buy an annuity, figure out how to shop for annuity contracts and how to use one to make your retirement years financially safer.Tips for deciding on an annuityIf you’re considering an annuity, take a serious look at your personal situation.

Would you buy an insurance policy today that would cost you about one-fifth of your savings and pay you a guaranteed lifetime income starting at age 80 or so? If you died before age 80, you'd lose your original premium, but if you lived to age 85 or 90, you'd eventually get back much more than you paid up front.

A fixed deferred annuity is the insurance industry's version of a savings account. It helps you earn a modest rate of interest safely and allows you to postpone the payment of income taxes on your earnings for as long as you want. Fixed annuities sometimes offer higher interest rates than competing investments, such as CDs (certificates of deposit), because the insurance carrier puts your money in longer-term bonds, which typically offer better returns than short-term bonds.

As baby boomers enter retirement age, estate planning and sound investing loom large as they plan for a happy retirement and for leaving their children a legacy. Annuities offer a way to invest your money without the fear of losing it all to the whims of market forces. What is an annuity? Put simply, annuities are investments with money-back guarantees.

Technically, every annuity has two phases: accumulation and income. During the accumulation phase, you put money in the annuity account (paying all at once or making a series of payments), and it grows tax-deferred. During retirement, you initiate the income stage by converting it to an irrevocable income stream.

All annuity contracts share the same basic DNA. The following sections describe the participants who have a hand in all the annuities you'll run across. The owner The owner of an annuity is just that — the owner. This person Pays the premiums Signs the application Agrees to abide by the terms of the contract Decides who the other parties of the contract will be Can withdraw money or even sell the annuity (depending on the type of contract or the stage it's in) Is liable for any taxes that are dueTwo people can own an annuity contract jointly.

Index annuities were created in 1996, when investors were shifting their attention from bond-based investments like fixed annuities to stock-based investments, including mutual funds and variable annuities. (The greatest stock market rally in the history of the universe was well underway by then.) To capitalize on the excitement over stocks, some insurance carriers started marketing a new kind of fixed annuity, called an equity-indexed annuity, or EIA.

Although insurance companies usually assume your interest-rate risk when you buy a fixed annuity, that’s not always the case. With a market value-adjusted (MVA) fixed annuity, you assume the interest-rate risk. In return, the insurance company can afford to pay you a slightly higher interest rate than it pays on non-MVA annuities (book value annuities).

A fixed deferred annuity is the insurance industry’s version of a savings account. The annuity helps you earn a modest rate of interest safely, and allows you to postpone the payment of income taxes on your earnings for as long as you want.When you buy a fixed deferred annuity, you’re indirectly lending money — without taking the risk that the borrower won’t pay you back.