Immediate vs. Deferred
Immediate annuities allow you to start receiving payments immediately after purchasing. This income is usually paid over a specific period of years, for the rest of your or your spouse’s life or a combination of the two.
Deferred annuities begin making payments at a future date, usually after you retire. You can invest a lump sum amount or add funds periodically, which will grow tax-deferred over time until you begin receiving payments.
Fixed vs. Variable
Fixed annuities offer a guaranteed growth rate over a typical period of one to fifteen years. Funds in fixed annuities are usually invested in government securities and high grade corporate bonds.
Variable annuities let you invest in portfolios called sub-accounts, whose performance affect the growth and payout of your annuity. In addition, variable annuities have optional living benefits and death benefits.
With or Without Withdrawal Penalties
With Withdrawal Penalties
Annuities generally impose a penalty for making withdrawals of more than the annual limit during the surrender period. This surrender charge decreases by a percentage point every year.
Without Withdrawal Penalties
Some annuities do not have a surrender charge for early withdrawals. However, these no-surrender annuities may sometimes have higher fees compared to those with withdrawal penalties.
Fixed-indexed or equity-indexed annuities combine the features of indexed annuities and variable annuities through a guaranteed minimum return plus a chance at higher gains from a benchmark index.
Some annuities with surrender charges offer an immediate bonus to investors as incentive. However, the surrender period is often extended to eight to nine years instead of seven.