Annuities are a type of retirement savings offered by insurance companies. You pay a premium, typically $20,000 to $100,000, in return for a monthly check. You can choose when the payments begin and how long they last -- five years, 15 years or every month for the rest of your life.

If, for example, you pay $50,000 for an annuity when you're 45 years old, the insurance company invests that money and you pay no taxes on the earnings until you begin receiving monthly checks when you're 60 or 65.

There are three basic types of annuities:

Fixed-rate annuities are the safest and most conservative, with your premium invested in Treasury bills and CDs. Although you know exactly what your monthly payment will be, fixed-rate annuities usually provide the smallest monthly check for any given premium.

Indexed annuities offer the potential for higher payments because your money is placed in more lucrative mutual funds that track the performance of financial indexes, such as the Standard & Poors 500.

If the markets are booming, your monthly payments will go up. If stocks hit the skids the insurer guarantees a minimum payment, usually 3% of your investment.

But such guarantees aren't free. Indexed annuities charge higher fees and cap the maximum return you can make. If the S&P 500 is up 8.5% for the year, but your cap is 7%, then only 7% of the returns are credited to your account and are reflected in your payments. The insurer keeps the rest.

Go to the Securities and Exchange Commission's web site to learn more about indexed annuities.

Variable annuities can provide the biggest payouts because you can invest your money in higher-paying, but higher-risk, mutual funds. Most also offer a death benefit that returns all or part of the money in your account to your spouse or other survivors.

The problem is that variable annuities charge the highest fees of all. As the Wall Street Journal recently put it: "You need to shoot for high returns to beat the performance drag from the annuity's hefty annual expenses." They also offer a long list of options such as long-term care insurance and a guaranteed minimum income, which sets a floor under your monthly payment even if there's not enough money in your account to support that level of payments. But remember, you'll pay extra for each of those options.

The SEC's web site is also a good place to learn more about variable annuities.

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