Different types of annuities include immediate, deferred, fixed and variable annuities. An annuity, which is most often used as part of a comprehensive retirement strategy, is an agreement between the investor and his insurance company that allows for the safeguarding, growth, and eventual payout of funds. Retirees gain access to their annuities through regular withdrawals that can be planned to mimic the stability and frequency of the paychecks they received while in the work force.
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An understanding of the different types of annuities will help those planning for a secure retirement. By using the information contained in this article, you will be better able to compare annuity rates on-line using the quick and convenient tool located right here on this page. The annuity rate comparison tool will generate quotes from the most respected and successful insurance companies all over the United States. The on-line annuities comparison tool covers all the different types of annuities, ensuring that you will be well represented no matter which option you choose.
The most common type of annuities are:
- Deferred annuities- promote the growth of funds in advance of one’s departure from the workforce
- Immediate annuities- designed for those closer to, or at, retirement age who will be making withdrawals as soon as the account is set up.
Both deferred and immediate annuities can be further divided into the “fixed” or “variable” categories.
What is a deferred annuity?
The deferred annuity process begins when the investor makes either one lump-sum payment or the first in a series of payments to his insurance company. The payments build interest according to either a fixed deferred annuity plan or a variable deferred annuity plan as agreed upon by the investor and the insurer.
- The fixed deferred annuity is one that guarantees a certain interest rate for a certain amount of time. There is stability in this choice, but it is has the potential to be the less lucrative option when compared with the variable deferred annuity.
- The variable deferred annuity is built on a variety of stocks and bonds in addition to a fixed-rate interest account. The stock market, with its fickle ways, makes this option a less certain investment, but it opens the door to the potential for much greater gains.
Deferred annuities are tax deferred as well. You will not be taxed on your investment until you begin to receive payouts. This can equal big savings if you end up in a lower tax bracket than the one you were in when you set up your deferred annuity plan.
What are immediate annuities?
Immediate annuities most often begin with a lump sum payment to the insurance company by the investor. The contract is then “annuitized” when the investor begins getting his funds back in the form of regular payments that serve as part of his retirement income. Immediate annuities come with the significant benefit of being paid out as long as the investor lives. The amount of each payment is determined by an equation that takes into account the specified interest rate and the average life expectancy.
Some of those with immediate annuities make plans for their beneficiaries to receive the remainder of their annuities upon death. They do this in exchange for a slightly lower payment with each withdrawal while they are alive. Others choose to forgo the “lump sum refund” in favor of the “life only” payment plan so that they can reap maximum benefits from their investments while they are around to enjoy them.
Immediate annuities come with tax benefits as well. The majority of the immediate annuity—the part that is regarded as a return on principal—is actually tax free. This phenomenon goes by the term “exclusion ratio,” and it means that the holder of the immediate annuity need only pay taxes on a small percentage of that income.
How do I find an annuity that meets my needs?
Now that you have read about immediate, deferred, fixed and variable annuities, you are ready to move on to the next phase of the quote comparison process. Take a look at the annuity rate comparison tool on this page to generate quotes from nationally respected insurance companies. The on-line annuities comparison tool will give you multiple quotes for each of the different types of annuities mentioned here. Don’t delay—start preparing for your retirement today.
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