A growing number of investors are putting their money into private retirement accounts with annuities being by far the most popular of these. These insurance plans have been around for a long time, but they surged in the 1990s as government regulations and a robust economy combined to encourage investment in many financial instruments including annuities.

Today, even with a faltering economy, annuities have continued to be a strong investment choice, but for a different reason. Financial advisers are recommending annuities for their clients because of the commissions they make in selling these plans.

When he buys an annuity, a customer pays his insurance company a monthly or annual payment until an agreed-upon date. At this point, the insurance company begins making monthly retirement payments to the client. If the buyer lives long enough, he'll make more money than he spent. But according to mortality tables, so many investors will die before they recoup all of the money they paid into the system that the insurance company will see a profit from selling enough of these plans at the right price. Therefore, they are willing to pay their agents good commissions for selling these plans.

An investor may choose either a fixed annuity which yields a reliable, agreed-upon payment upon retirement or a more risky, but potentially more rewarding, variable annuity that is based on the performance of an investment – usually stocks. Either way, the payments the consumer makes during his working years are not taxed until he begins to draw a retirement income from them.

Some analysts estimate that about half of the money put into annuities is taken out of other retirement plans. As these funds are transferred, agents can earn up to 14 percent in commissions. These analysts argue that consumers do not actually benefit from taking funds out of other accounts to invest in annuities. They believe that salesmen are "churning" savings accounts to make more money for themselves.

However, the financial advisers who sell these contracts counter that annuities can be a valuable part of a retirement plan. Savings accounts can be drawn down over a long life span, but an investor can rely on a monthly annuity payment no matter how long he lives. Since American investors are spending over a trillion dollars a year on annuities, people must agree with their advisers that these plans are a good bargain.