The Different Types of Annuities, Choosing the One That Fits Your Goals
If you have ever searched online for annuities, you probably noticed how quickly the information becomes overwhelming. Terms like “fixed,” “variable,” “indexed,” “immediate,” and “deferred” appear everywhere, but often without context that makes sense for your real-life needs.
The good news is that annuities do not have to be confusing. Once you understand the main categories and how they work, it becomes much easier to see which type, if any, may fit into your retirement strategy. In this article, we’ll break down the most common types of annuities in plain language so you can start with clarity.
Fixed Annuities: Stability First
A fixed annuity offers a guaranteed interest rate for a specific period of time. That means you know exactly how much your money will grow during the accumulation phase and what your income will be during the payout phase.
People often choose fixed annuities for their stability and predictability. They are designed for those who value security over higher growth potential.
Variable Annuities: Market-Linked Growth
A variable annuity lets you invest your money in subaccounts that function similarly to mutual funds. The potential upside is that you can benefit from market growth, but your returns, and sometimes your future income, will also fluctuate with market performance.
Variable annuities can appeal to those who want both investment opportunities and the option of adding lifetime income benefits, but they come with higher risk and often higher fees.
Indexed Annuities: A Middle Ground
An indexed annuity blends aspects of both fixed and variable products. Your interest is linked to the performance of a market index (like the S&P 500) but typically comes with a floor to protect against losses. These products often have caps or participation rates that limit how much of the index’s gain you receive.
Indexed annuities are often chosen by those who want some potential for growth without exposing all their savings to market losses.
Immediate Annuities: Income Right Away
With an immediate annuity, you give the insurance company a lump sum and begin receiving payments almost immediately, often within 30 to 60 days. These can be useful for people who have already retired and want to turn part of their savings into a reliable income stream right now.
Deferred Annuities: Building for the Future
Deferred annuities allow you to put money in now, let it grow during the accumulation phase, and begin income payments at a later date, sometimes years later. This delay can be beneficial if you are still working or do not need the income immediately.
Matching the Right Annuity to Your Goals
The most important thing to remember is that not all annuities are designed to do the same thing. Some focus on guaranteed income, others on growth potential, and others on protecting against market downturns.
Choosing the right one depends on your age, retirement timeline, income needs, risk tolerance, and overall financial plan. A fiduciary advisor can help you understand the trade-offs so you can feel confident in your choice.
If you would like to see which type of annuity could best support your retirement goals, contact Troy for a conversation. He can walk you through the differences in more detail and help you decide if an annuity is right for you.
Disclosure: This information is for educational purposes only and is not intended as a recommendation to purchase or sell any annuity or other product. Products involve risks, fees, and surrender charges that may not be suitable for all investors. Guarantees are subject to the claims-paying ability of the issuing insurance company