A Fixed Tax-deferred annuity, also referred to as a tax-deferred annuity, is a contract between you and an insurance company for a guaranteed interest bearing policy with guaranteed income options. The insurance company credits interest, and you don't pay taxes on the earnings until you make a withdrawal or begin receiving an annuity income. Your annuity contract earns a competitive return that is very safe.

The idea of a fixed annuity is that you give a sum of money to an insurance company, and in exchange they promise to pay you a fixed monthly amount for a certain period of time, either a fixed period or for your lifetime (the concept of 'annuitization'). So essentially you are converting a lump sum into an income stream. Whether you choose fixed-period or annuitization, the payment does not change, even to account for inflation.

Fixed annuities allow you some access to your investment; for example, you can choose to withdraw interest or (depending on the company etc.) up to certain percentage point of the principal annually. An annuity may also have various hardship clauses that allow you to withdraw the investment with no surrender charge in certain situations (read the fine print).

Annuitization can work well for a long-lived retiree. In fact, a fixed annuity can be thought of as a kind of reverse life insurance policy. Of course a life insurance contract offers protection against premature death, whereas the annuity contract offers protection for someone who fears out-living a lump sum that they have accumulated.

Another situation in which a fixed annuity might have advantages is if you wish to generate monthly income and are extremely worried about someone being able to steal your capital away from you (or steal someone's capital away from them). If this is the case, for whatever reason, then giving the capital to an insurance company for management might be attractive.