There's an old investment tool that, after falling out of favor in the past few years, may be on the verge of a comeback. I'm talking about annuities. Annuities aren't designed to shoot out the lights in terms of investment performance. They do carry costs. However, they can also save on taxes (a key benefit if tax rates go up under a new presidency), while providing certain valuable guarantees.

Here's a quick overview of how annuities work. You deposit money with an insurance company. If you don't need cash back immediately, you'll opt for a deferred annuity. The insurance company will invest the money as you direct, either at a fixed rate or, if you choose a variable annuity, in one or more mutual funds offered by the annuity sponsor.

Interest, dividends and capital gains accumulate tax-free in the account until you begin withdrawals. (Because a 10% penalty tax normally applies on withdrawals before age 59-1/2, I recommend leaving money in a deferred annuity until you reach at least that age.) When you start taking money out, the IRS assumes that the tax-deferred earnings come out first, to be taxed at "ordinary" (wage and salary) income rates. The original principal you kicked in isn't taxed.

There are two basic ways to pull cash out of a deferred annuity:

1. Most annuities allow you to make withdrawals pretty much whenever, and in whatever amounts, you want, after the surrender charge (imposed by the insurance company) has lapsed. Assuming you're past the age of 59-1/2, you won't incur any tax penalty, either.

2. At any age, you can "annuitize," converting a deferred policy into a stream of monthly payments for life or a period of years. Bear in mind, though: Once you've elected to annuitize, you generally can't reverse the decision.

   Like other insurance products, annuities can be used to sidestep probate. If the owner dies before annuitization has begun, his or her designated beneficiary receives the proceeds of the account. No will is needed to effect the transfer. After annuitization, the policy will normally lapse on death unless (1) a joint annuitant was named or (2) the terms of the annuitization call for payments over a minimum number of years. Under those two exceptions, the survivor or other named beneficiary will continue receiving payments.