An annuity is a financial product sold usually by insurance companies to people who wish to make sure that they are going to have enough money to last them for the rest of their lives.
For many individuals this may mean a pension-type annuity called an immediate lifetime annuity. In essence, for a single lump-sum payment, the insurance company guarantees a person a certain monthly income for life.
For another investor a more appropriate type of annuity could be a deferred annuity. In this example, an individual contributes a certain amount each year for a fixed number of years into a tax deferred annuity.
At the end of the fixed term, the individual can take the accumulated funds and move them into another financial product or take the accumulated funds and use the tax deferred money to make a lump sum payment on an immediate lifetime annuity.