Before choosing an annuity, it's important to understand the different types and how they might affect your financial picture. The main categories of annuities include:

Fixed annuities:

A fixed annuity offers a specified interest rate during the accumulation phase, or the period during which your value is growing in the annuity. When you are ready for your stream of payments to begin, the value of your funds is turned into a steady stream of payments that provide a specified payment for either a certain period of time — say, 20 years — or for an indefinite period, such as your lifetime or the lifetime of you and your spouse, the SEC says.*

Variable annuities:

In a variable annuity, you direct funds accumulating in your annuity to investments of your choice that are offered by the insurance company — typically mutual funds, according to the SEC. Your income stream in retirement is dependent upon how well your investments performed during the annuity's accumulation phase, the SEC says.

Indexed annuities:

An indexed annuity provides you with a return that is tied to a major stock market index, such as the Standard & Poor's 500 Composite Index, says the SEC. During the accumulation phase, your investment's rate of return reflects the performance of the selected index. However, these annuities typically also offer returns that are no less than a specified minimum, no matter the index's performance.