Type of Annuities
The different types of annuities can be overwhelming to a first timer, but when explored separately, one can learn that they are much easier to understand than they seem. Regardless of type, all annuities summate to being an insurance contract that guarantees you an income and in many instances, it will be lifelong. Deciding on which annuity to choose will depend on a variety of life factors, including your risk orientation and how much money you want to make through your investment. Each type of annuity serves a certain purpose and choosing the right one will help you reach your goal in the most effective way possible. Keep in mind, there are advantages and disadvantages to each type of annuity, but the one we will work together with you to select will be the best one for your personal situation.
A popular option among retirees looking for a known, readily available income, a fixed annuity that has a fixed interest rate similar to a bank-CD, but are often have a more lucrative interest. This type of annuity allows you to defer income or receive it immediately. They have guaranteed interest rates that can sometimes offer a higher interest rate the first year with a guaranteed interest rate throughout the surrender period with no penalty.
A variable annuity gives you options for your annuity. They are built with the intention of giving your savings a boost with opportunities for continuous capital growth, allowing you to get more from your annuity in the long run. A variable annuity lacks the consistency of a fixed annuity, but gives you a broader range of choices when it comes to investing your money, sometimes allowing up to 20 sub-accounts for you to invest in. These sub-accounts are Stocks, bonds and other securities investments. These opportunities can offer greater returns than fixed rate annuities. What one must be aware of, though, is that a variable annuity’s success will rely on the success of the investments that have been made. There are less certainties with a variable annuity, so while the potential gain is bigger than a fixed annuity, losses can happen. Costs are also higher with a Variable Annuity. Ultimately, Variable annuities can have returns and payouts higher than other types of annuities, but historical performance has been inconsistent. If you make the correct investments in the sub-accounts the returns and payout will be better. If not the return and payouts will be lower.
An Indexed annuity, known also as an Equity-Indexed or Fixed-Indexed annuity is the place where two annuities meet. By combining the best qualities of both, an Indexed annuity hopes to boost the benefits that come with investing in an annuity. This type of annuity takes a guaranteed minimum return and combines it with a chance to participate in the stock markets gain. This way, you are always guaranteed a minimum percentage of interest while still having a chance to improve your interest rate with the stock market’s rise. They offer the best of both worlds. No losses when the stock market is down, fixed returns that mirror fixed annuities and gains that are between Variable and Fixed. Indexed annuities also offer guaranteed income payouts that are at the top of any type of annuity offered.
These annuities are ones that will be most familiar to the average retiree or pre-retiree. These straightforward annuities hold many similarities with a life insurance policy, allowing the holder to pay a lump sum amount to an insurer and receive a consistent and ongoing payout until the holder passes away or within a 10-20 year span. The payout method is decided by the holder monthly, quarterly or annually. The payouts from these accounts are able to start paying out allowances right away, as the name suggests. These annuities are either fixed or variable, depending on the deciding factors of the beneficiary’s life.
A longevity annuity seeks to evade one of the disadvantages of an immediate annuity: Outliving your nest egg. This annuity requires you to reach age 80 or so to start receiving payouts from the annuity. By doing this, the retiree is more likely to maintain a steady income unaffected by concerns about inflation until they die. These types of annuities are better utilized as an extra supplement to an already existent retirement fund, as it functions as more of a safety net for your later years in life rather than an ongoing life-supporting income. This type of annuity does not allow your heirs to receive the payouts or withdraw the money from the annuity to close it out. If the annuity holder passes, the money goes with them.