Types of Annuities
There are many ways in which annuities can be classified. Some of those include the purpose of the annuity, pay-out terms, tax status, and how the premium is negotiated. Below is a summary of key classifications.
- Immediate Annuities – For a specified period of time or for the rest of your life, you can use an immediate annuity for regular payments. Immediate annuities are single payment annuities. A large sum of cash can be used for income for a specific time frame. These are not intended to offer liquidity or growth.
- Income Annuities – An annuity that is fixed or variable paying a certain monthly amount. Income annuities are usually purchased in a lump sum and are used to provide a stable income for retirement.
- Deferred Annuities – This annuity will begin payments from a specific date. Usually these are purchased with payments or sometimes a single payment. These payments are typically made while the insured is working in order to receive payments during their retirement.
- Fixed Annuities – This annuity is used for retirement or savings for long term investors that want to have the stability of a fixed interest rate with no risk that they’ll every lose any of the principal. A fixed annuity will provide steady and guaranteed growth with the tax-deferred benefit
- Variable Annuities – With a variable annuity, the insurance company pays periodic payments to you either now or at a future date. The insured might see higher growth from a variable annuity, but will also be at risk from market changes. Variable annuities will vary with the performance of the investment options that are chosen.
Our agency is not engaged in the marketing of variable annuities due to the market risk associated with that type of annuities. Instead, we focus on fixed annuities that are not tied to any investment or any investment market. By utilizing old-fashioned fixed annuities, your principal is safe and your rate of return is guaranteed. It’s up to you as to what period of time you wish to keep funds in any particular annuity.
Interest rates are poised to go only one direction for the foreseeable future: UP. Therefore, we recommend purchasing annuity contracts of limited duration, i.e., short-term, in order to take advantage of rising interest rates. Contact our office for further guidance.