Different Types of Annuities

by Jeff Rose on May 3, 2012

different types of annuitiesSo you’ve decided to invest, a great choice, and you’ve chosen to get an annuity as well, another great choice.

But if you’re assuming an annuity is just something to pay and leave to grow, then you’re sorely mistaken. Different types of annuities yield different results, and work in very different ways for investors.

Before you do anything, take the time to sit down and understand the different types of annuities, what they can offer you, and which one is best suited to how you intend to invest. Knowing what you’re about to get into can save you undue stress and help maximize your profits.

Immediate annuities are one of the most common types available, and work much like their name suggests. Let’s imagine that you just won $500,000, half of which you’re going to put into an immediate annuity. That $250,000 you invest will earn a set interest for the rest of the time it is with the company, and you’ll immediately start receiving payments from the company.

Deferred annuities are also one of the most common plans available for investors, and are practically the opposite of immediate annuities. Instead of instantly receiving payments for your $250,000 investment it will take years to mature before you start receiving payments, most likely as you enter retirement. This type of annuity is best made in small payments over a large period time, with tax-deferred interest building up to provide a stable source of income during retirement.

Within both immediate and deferred annuities are fixed and variable annuity options. Fixed annuities come with a fixed rate, guaranteed to be paid over the time your investment needs to mature, and best implemented for retirement funds. Variable annuities are slightly more complicated. The rate is much lower than for a fixed annuity, but with the option of investing in a mutual fund providing a chance for greater returns. Though riskier, variable annuities can quickly gain value and be switched to a fixed annuity whenever you desire.

Though we’ve only covered the basics of the different types of annuities, by now you know enough to be able to confidently step into any investment managers office and clearly state what you want and make an informed decision. An annuity can be the only thing standing between a retirement spent working, and a retirement spent relaxing and enjoying life. The different types of annuities have different benefits and drawbacks, and knowing which one you want is the first step towards getting what you want and protecting your investments.

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