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Types of Annuities

Compare types of annuities

Annuity Products

Review the different types of annuities and determine which retirement income plan works best for you. With the numerous annuity products available today, understanding them can be difficult. However, this can be simplified because each annuity is typically a combination of these three main characteristics.

Immediate vs. Deferred

Immediate Annuities

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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.

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Deferred Annuities

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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.

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Fixed vs. Variable

Fixed Annuities

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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.

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Variable Annuities

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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.

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With or Without Withdrawal Penalties

With Withdrawal Penalties

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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.

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Without Withdrawal Penalties

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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.

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Other Types

Fixed-Indexed Annuities

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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.

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Bonus Annuities

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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.

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