Types of Annuities

All types of Annuities are an investment. You make a lump-sum payment to purchase the annuity, and you will receive regular payments later in life when you need your retirement income supplemented. Most annuities are deferred, but you can choose to invest in immediate annuities that will begin sending you payments within 30 days of purchase. All types of annuities feature some nice tax advantages.

The initial investment is not taxed, and the investment enjoys a tax-deferred status. When it’s time to start withdrawing funds, you will not be taxed on your initial investment, but you will pay taxes at your regular income tax rate on the earnings. The investment terms dictate the rates. Rates take into account if the annuity will support only a single person or a couple. Some types of annuities end with the death of the recipient while other continue for the heirs or a spouse, and that will impact the rates.

Look at the different options before choosing one of types of annuities that’s right for your particular situation. Investors appreciate annuities because they carry minimal risk to the investor. If the annuities gain money, you will benefit from the gains. However, if the annuity investment options lose money, the investment company will absorb the loss to protect you.

While all types of annuities are a safe investment, some have more attractive features than others. When doing your research, make sure you only consider options from insurance companies with a strong financial rating, or “A” rating.

Fixed annuities

When markets are volatile, fixed annuities provide you with valuable peace of mind. Fixed annuities protect your investments against future losses, and you will accumulate savings that are tax deferred to help you save money now and in the future. Interest rates are guaranteed so you can be confident that your investment will grow, and you have easy access to the funds. Unlike other retirement vehicles, fixed annuities provide you with penalty-free options for withdrawing funds in the event that you need access to your money.

Variable annuities

Another deferred investment vehicle, variable annuities provide you with investment options that are professionally managed to ensure high returns. A guaranteed death benefit for beneficiaries ensures that your loved ones are provided for in the event of your death. Providing you with an opportunity to invest in a tax-deferred vehicle, you can pay an additional fee to have optional living benefits that will protect your retirement income.

Equity-indexed Annuities

Offering some tangible benefits, equity-indexed annuities are a fantastic choice for boosting your retirement income. They have the important protection against principal loss, so you won’t lose money even if the index goes through a drop. More importantly, this type of annuity comes with an annual reset option. With this tool, you have the opportunity to lock in gains each year when the index is earning revenue. There are minimal management fees, and the income is guaranteed for life if you invest in a guarantee income rider.

Retirees are often concerned that they will outlive their savings and wind up destitute and struggling to buy groceries. There was a time when you could comfortably live on Social Security income if it was invested, but you need more than Social Security can provide you with. With equity-indexed annuities, you won’t have to worry about running out of funds or losing money through investments.

Immediate annuities

Also referred to as DIY pensions, this is one of the most popular types of annuities for retirees who are losing their pensions. When you invest in these programs, you are essentially buying a monthly pension check. After making a lump sum payment to the investment company, they will provide you with monthly payments. The first payment usually starts within 30 days of the payment. This simple plan features a steady payment that continues for the rest of your life. A financially secure program with very low risks, they are also tax efficient because you can fund them with tax-deferred vehicles. You will then only pay taxes on the checks you receive throughout the year.

Annuities can become one of the most attractive components of your retirement portfolio. Choose the right annuity program for your needs by talking with an experienced insurance agent. All types of annuities are safe investment vehicles that will protect your retirement savings and provide you with important tax benefits.