Editorial

The Different Types of Annuities Explained

Did you know that 46% of Americans don’t know how much they have saved for retirement? In fact, 22% of Americans have less than $5,000 in their overall savings. If you are struggling to save money for the future, you should consider buying into annuities.

Don’t know where to start? Read on to learn about the different types of annuities out there.

Types of Annuities

There are different types of annuities out there that most people buy to supplement their retirement income. This could include Social Security and pensions.

The different types of annuity in life insurance aim to guarantee income for life. It also assures that if other assets get depleted, other income will still come in.

The two types of annuities are fixed and variable.

Fixed Annuities

A fixed annuity means the insurance company provides a specific payment on a day in the future. This could be years later unless you opt for an immediate annuity for emergency use. The two types of fixed annuities are immediate and deferred.

The insurer invests money in bonds or securities to deliver the return later on. These annuities may have unpredictable returns, but they are still considered safe and secure.

Over time, payouts may lose their purchasing power because of inflation. To combat this, the buyer can pay extra for an annuity that considers inflation. Those who don’t want a big risk go for these annuity types.

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Variable Annuities

Another one of the types of annuity in insurance is variable. This means the insurer invests in funds chosen by the buyer. The account grows or declines based on the performance of the chosen funds.

The payouts for this can be fixed or vary with the performance of the account. Those who opt for variable annuities are willing to risk more in hopes of receiving a bigger profit. This option is best for those that are familiar with investing and the risks involved.

Immediate Annuities

When you get an immediate annuity, you receive payouts once you make a lump sum payment. This payment goes to the insurance company. This could be variable or fixed.

Deferred Annuities

With deferred annuities, the money in your account grows over time. This is similar to an IRA or 401(k). The annuity grows without worrying about taxes until the money gets withdrawn.

Selling Your Annuity

As there are different types of annuity payments, there are also ways to sell your annuity. The two ways are through a partial sell or lump-sum sell.

If you need fast money, you can do cash out annuity, but you don’t have to sell the whole thing to receive money. Through a partial sale, you can certain future payments. With lump-sum sales, you specify the dollar amount you want from your annuity.

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What Annuity Is Right for You?

Because there are different types of annuities out there, it may seem confusing to know which one is right for you. The biggest difference you may want to consider is the risk factors that each type has. If you are looking to up your income now or in the future, understanding the different types will be beneficial.

Want more personal finance tips? Check out our other blog posts!

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