An annuity is a type of insurance policy that provides for you to receive a lump sum payout in the future.  It's a way to save for retirement, but it isn't without risk: some people find they've lost their money because of fees, market fluctuations and other factors.

An annuity can be used to save for a variety of purposes, including:

• retirement;
• college tuition payments;
• payments for the care of elderly parents.

There are several types of annuities:

1. An immediate annuity is a contract between an insurance company and the annuitant. The annuity payments are made to the annuitant in regular intervals, such as monthly. The length of time over which payments are made can be fixed or variable, and payment may continue for a fixed number of years or for the lifetime of the annuitant.
2. Deferred annuity. With this type of receiving, annuitant commits to making payments into the contract for a set number of years or for your lifetime. The payments are not paid out immediately, but at a future date that is predetermined. 

• A qualified employee annuity is distributed to the employee through a retirement plan, such as a 401(k) or IRA. To be eligible for this type of annuity, an employee must meet the following criteria:
  • be at least 65 years old;
  • have worked for your employer for at least five years.