In general, annuities are investment products marketed to a large number of people, but they typically fit the specific needs of a relative few. Annuities usually attract wealthy investors saving as much as possible for retirement. Most have already tapped out their other tax-deferred savings options. Young investors should fully fund IRA plans and any company 401k plans before looking to variable annuities as an investment option.

Most retirees want assurance that they will have enough money to maintain a certain lifestyle, be prepared for emergencies, and have a stable income in their later years. Annuities provide assurance of a steady stream of income for life or for a specific period of time. For many who fear investing and the whims of the market, this guarantee is very attractive. Many people are willing to pay for this security, which annuities can provide.

- you contribute the maximum to your 401k plan and IRA and want to defer taxes on investment gains

- currently in the 28% or higher income tax bracket and will be in a lower tax bracket upon retirement

- will not need annuity payments before age 59.5

- expect to have the annuity for 15 to 20 years

- desire a guaranteed income for life during retirement

- are not worried that heirs will pay income taxes on the annuity's appreciation

Annuities have some excellent advantages over other investment vehicles. Some benefits include:

- guaranteed principal and interest payment

- tax-deferred savings growth

- additional retirement account investment

- avoidance of probate for estate upon death

- increased death benefit

- stock-market linked gains without downside risk

- inheritance investment benefits

The majority of investors saving and planning for the long-haul do not really need an annuity's return guarantees, especially if they have some risk-tolerance. Annuity's guarantees protect against market downturns, but if the investor is truly focused on the long-term, history dictates that the market will remain positive over the long-term.

A fixed annuity provides a guaranteed income. Variable annuity products can provide higher returns than a fixed rate account, but the returns are not guaranteed. The amounts allocated to the variable funding options of the account balance are subject to market fluctuations. In the long-run, this risk isn't that great, but it does exist, and the initial investment may be worth more or less than the original value. Many variable annuities also offer a fixed rate account. Earnings grow tax-deferred until withdrawals begin.

The main selling point of an annuity is that the underlying investments grow tax-deferred, similar to an IRA. Gains from the annuity are not taxed until money is withdrawn. With an annuity an investor can choose to have the annuity pay a guaranteed income - annuitization - based on how well the underlying investment performed, until death. This attribute is only possible with an annuity. The insurance portion of the annuity also may provide certain investment guarantees, such as guaranteeing that the full principal (amount originally contributed to the account) will be paid out on the death of the account holder, even if the market value was low at that time.

Unlike a conventional IRA, the money put into an annuity is not deductible from your taxes. The taxes are simply deferred until they are withdrawn. Also, unlike an IRA, there is no limit on how much money an investor can contribute to the annuity.

Variable annuities are usually very expensive. Most investors should invest in index funds, which are cheaper and also provide favorable tax benefits.

Visit http://www.annuity.com or http://www.insure.com. Talk to a tax professional and be sure to fully understand an annuity's annual fees and expenses before investing.

For more information on individual annuities, visit Vanguard, Fidelity, or T. Rowe Price. These mutual fund companies also sell annuities and generally have better annuity products than the annuities offered by insurance companies.

The Securities and Exchange Commission provides an excellent overview of variable annuities: http://www.sec.gov/investor/pubs/varannty.htm