An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy.
Fixed and variable annuities are the two main classes of annuities and are an excellent source of retirement income, but these financial vehicles are also often used simply as a place for clients to earn a nice interest rate, usually well above the rate they might get at the bank in a CD. The most important fact about annuities, though, may be that the client cannot lose any principal in an annuity, making it an attractive, relatively safe financial product in a rocky economy. There are state guaranty funds that protect annuity owners if an insurance company fails, but the coverage is limited and varies from state to state.
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