For those of us who have depended on a steady paycheck all of our lives, retirement can seem a little scary. I mean, sure, you probably have a lot of money in a 401K or other retirement fund, but how do you know if it will last as long as you do?

One way to ensure that you still get a steady paycheck for as long as you live is to buy an annuity. This is a “plan” that you buy from an insurance company. You give them a lump sum of money and they agree to pay you an income for a specified period of time or for the rest of your life (depending on what you buy).

You can buy an annuity when you are young and have the payments start at retirement. You can pay in to the annuity over time so that your money is building. You can also buy an annuity with a large lump sum and have the payments start right away. Obviously the amount of money you invest will have a large effect on the size of the payments.

There are three types of annuities commonly sold on the market today. Fixed, variable and equity indexed.

Fixed annuities have a fixed payout which is great because it provides a steady amount of money in your retirement years kind of like a paycheck. The only problem is that a steady payment isn’t really as good as it sounds because of inflation. As the years go on, your money will buy you less and less so these annuities offer an option to have the payout increase by a small percentage each year.

A variable annuity allows you to choose from a range of different investments within the account. This means that you might get much larger returns than the fixed annuity, but you might also get less of a return. The investments are similar to mutual funds. Most people prefer this because over the long term, the investments these are based on will go up even if they have ups and downs along the way.

A newer type of annuity is the equity index annuity. This is kind of a combination of the fixed and variable annuities where it can earn more than a regular fixed annuity but has less risk (and albeit, less earnings) than a variable annuity.

Annuities are not a good investment for everyone. Yes, the promise of a steady paycheck for life does sound good but the truth is that in most cases that check will be very small unless you have a lot of money to invest and if you do, you can probably do much better with another investment. That being said, it can be a smart move for those who have already contributed the maximum amount to a 401K plan and are looking for some other vehicle for their “extra” money.

When looking at your overall retirement plan, you should keep annuities in mind and evaluate them against your other options for retirement savings.