Few financial products draw stronger, or more varied, reactions than annuities. To some, they're a safety blanket for your retirement, offering payments that you can count on for life. But for others, they're essentially an expensive gimmick that benefits the insurance rep more than the investor.

Who's right? Unfortunately, there's no easy answer to that question – it depends on which annuity you choose and how you incorporate it into your overall retirement strategy. To decide if one of these contracts is right for you, it's important to understand the different types and what their strengths and weaknesses are.

• Immediate annuities. These are contracts whereby you agree to pay an insurance company a lump sum. In return, you receive a stream of payments for the remainder of your life or, less commonly, for a specific number of years.
• Deferred annuities. You make a one-time payment or series of payments to the company. But you don't start receiving income until a later date. The benefit of holding off is that you receive higher payments once the annuitization phase begins.

Within these two basic categories, you have a number of additional options. The primary difference among them is how the insurer calculates your payout.

• Fixed annuities. When you buy the contract, you'll lock in a specific monthly disbursement amount for life. The annual return on your contributions is based on the interest rate set at the time of purchase. The advantage with a fixed annuity is that you won't lose principal. However, the return you'll get can easily be eroded by inflation.
• Variable annuities. Rather than offering a predetermined payout, the return on variable annuities is pegged to a basket of stocks or bonds known as subaccounts. If the underlying securities you select do well, your payout can increase, and even potentially exceed that of a fixed annuity. Conversely, if the investments do poorly, you could end up with a lower payment.
• Equity-indexed annuities. These are similar to variable annuities, but with a twist. Instead of the insurer basing your return on a specific group of stocks and bonds, it's linked to an index like the S&P 500. So if the market as a whole goes up, you get a bigger check. One perk of indexed annuities is that you normally receive a guaranteed minimum benefit even if the market falters. But there's a catch: Your returns are capped during strong years. So if stocks jump 10%, you may only receive a 7% or 8% credit. (Read more on this in Variable Annuities with Guaranteed Income Options.)

There's some aspects to like, and some not to like, about annuities.

First, the likeable. As a way of hedging against longevity risk – the chance that you'll outlive your assets – annuities can be a powerful tool. Americans used to be able to count on a solid pension payout from their employers throughout their retirement, but that's no longer the case for many aging adults. When you buy an annuity, you have something to supplement your Social Security check, even if you live to 95 or 100.

But there are also plenty of drawbacks. First and foremost is the cost, which can be especially high with more complex contracts like equity-indexed annuities. In addition to paying the agent's commission – something that's built into the policy – you're likely to face higher annual fees and administrative expenses than you would with a mutual fund.

Annuities not particularly flexible, either. Once you start receiving payouts from an annuity, your money is locked up in the contract. If you die early, there's less money to pass along to your heirs. And while cancelling the agreement isn't impossible, it can be pricey. Deferred annuities usually come with a gradually diminishing surrender charge that makes backing out prohibitive over the first few years of the contract.

While contributions to an annuity are tax-deferred, you have to pay your ordinary income tax rate on whatever you withdraw. So if you're in a moderate-to-high tax bracket, you could be paying a lot more than the 15% you'd pay on long-term capital gains.

To figure out how much annuity protection you'll need, first calculate your total expenses each month, from food and utility bills to healthcare costs. Then figure out how much income you have from other s like Social Security and pensions. The difference is how much you need an annuity to pay.

Say your total expenses come to $3,000. If you bring in $2,000 from Social Security and a former employer's defined benefit plan, you'll want an immediate annuity that provides $1,000 a month in additional income.

According to the website ImmediateAnnuities.com, a 65-year-old male would have to contribute about $179,000 to get that guaranteed level of protection. A woman of the same age would have to kick in roughly $187,000, based on her longer expected lifespan. You can also buy a joint life with last survivor annuity that continues to pay your spouse if you die first, although you have to shell out more for the same payout level.

One of the disadvantages of buying a fixed annuities right now is that we happen to be in a period of historically low interest rates (although As Expected, The Fed Raised Interest Rates in December 2015) – and that means lower payouts. If you can avoid locking in all of your annuity contributions at a low rate, that's ideal. You can do that by laddering annuities: Instead of buying a single contract, you buy one now with some of your available funds. Then you buy another one a few years down the road, and so on.

Another approach is to take out a deferred annuity that won't start paying you until later in retirement. The main advantage of these longevity annuities is that a smaller expenditure gives you bigger payment 15 or 20 years down the road than an immediate annuity would. And it's only in the back half of retirement – say, age 75 and on – that a lot of investors really need that income protection.

Just as there's a danger in being too risky with your investments, there's a danger in being too risk-averse. Without maintaining an appropriate portion of stocks early in retirement, you may not experience the growth you need to make your nest egg last. Ideally, whatever amount you contribute to an annuity shouldn't affect the equity or growth-oriented component of your portfolio. Instead, you should think of it as a substitute for fixed-income investments like bonds and money market funds. So if you're purchasing a contract, sell some of your bonds or bond funds to pay for it before dipping into your equities to maintain an appropriate asset mix. That way, you'll benefit from a lifetime stream of income without having to forsake the higher potential returns that stocks can offer.

If you're worried about outliving your money, fixed annuities can provide valuable income protection. However, it's better to think of an annuity as an income-management tool, or budgeting device, during retirement rather than a long-term savings vehicle. During your working years, IRAs and 401(k) plans, with their lower costs and fewer restrictions, are usually the better way to build your assets.

Once you hit retirement, you can start thinking about how much income protection you need in the form of a fixed annuity. Even then, the trick is buying only as big a contract as you really need. If your nest egg is big enough that living a long life isn't a concern, you're probably better off skipping these contracts altogether.

As for variable and indexed annuities: As you get older, these products don't offer the reliability that makes fixed annuities an attractive option. While they might be able to keep pace with inflation, the various layers of fees that they usually carry cut into any return, making them less competitive than comparable mutual funds.

Remember, too, that the older you are when you purchase an annuity, the larger the payout you receive – after all, the insurer is paying you over a shorter period of time. And if interest rates rise in the interim period, your disbursement from the insurer will be even higher. Just make sure you stick with a highly rated insurer that you're confident will be around as long as you are.