Can you explain the different types of annuities?

Thanks for the question. Annuities can be complicated and they have pros and cons. They’re a great way to setup a predictable monthly income stream - almost like a pension - which gives people peace of mind. Unfortunately, they can also have high fees. In certain instances annuities make a lot of sense but it will depend on your individual situation.

Now let’s make them easier to understand. I can’t get into all annuity types here, but I’ll cover the major types which people would be most likely to purchase.

Annuities can be either Fixed or Variable and either Immediate or Deferred. This means there are four main types;

• Immediate Fixed

  • Receive income immediately at a fixed interest rate

• Deferred Fixed

  • Receive income starting at a future date at a fixed interest rate

• Immediate Variable

  • Receive income immediately at a fluctuating rate based on market conditions

• Deferred Variable

  • Receive income starting at a future date at a fluctuating rate based on market conditions

There is a fifth category called Indexed Annuities which have characteristics of both fixed and variable annuities. The interest rate won’t sink below a preset amount, but the rate is tied to a specified index, and can rise higher than a fixed annuity.

Annuities can be purchased through an insurance company, and sometimes are offered as part of a workplace retirement plan, such as a 403(b).

The term of an annuity is also a key component. Some annuities payout until the annuitant passes away, some have survivor benefits, and others payout for a specified number of years.

There are more details not listed here including contribution limits and withdrawals, but this should provide a good start. To discuss if annuities are right for you contact me.