Annuities

 

Different Types of Annuities

There are several different types of annuities, and you may be wondering which one is the best option for your needs. Here is a quick overview of the various types: Deferred, Immediate, Indexed, and Fixed. To learn more about each type, read the next paragraphs. Listed below are some key differences between the different types of annuities. Each has unique benefits and drawbacks.

Variable annuities

Before you decide to purchase a variable annuity, it's essential to know everything there is to know about this investment product. The first thing you should know is that variable annuities are not suitable for everyone. There are risks and costs associated with them, and you should consult a financial professional before you make a final decision. Also, you should consider the optional features that come with some annuities, such as long-term care insurance or an enhanced death benefit.

Another consideration is the sales charge. Most variable annuities have a sales charge. While some don't, many of them charge a surrender charge and an M&E charge. These charges decrease over time, starting at 7% in the first year and declining by 1% per year until they are zero. You may also be charged an annual fee, which can be up to 2% of your account value. However, this amount is often worth it if you are certain that you'll never need to use the money from the annuity.

Indexed annuities

When you invest in indexed annuities, you have many options for achieving a desired level of return. These investments offer a variety of benefits, including moderate asset growth, low-risk guaranteed income, and the potential for principal protection. Before you invest, be sure to speak with a financial advisor. This article discusses some of the advantages and disadvantages of indexed annuities. In addition, you'll learn more about EIAs.

While indexed annuities can be attractive to some investors, it's important to keep in mind that they may not be right for every individual. The market index reports a total return of 7% for one year. Of that return, 2.5% comes from dividends. Thus, many indexed annuities consider an index return of 4.5% when calculating gains. By comparing these two examples, you'll see that indexed annuities are a good choice for those with modest incomes.

Immediate annuities

Immediate annuities are great for covering monthly core living expenses that are not covered by social security or a pension. By receiving a guaranteed income stream, immediate annuities can offset your other expenses and allow you to keep the rest of your assets invested in growth-oriented investments such as stocks, indexed annuities, and mutual funds. To learn more about immediate annuities, read our guide to choosing the right one for you.

Investing in variable immediate annuities allows you to diversify your investments and earn a greater payout when your investments do well. These annuities often invest in different kinds of assets like bonds and money market funds. Because the performance of these investments can change, your payout may rise or fall. However, you will not lose the original investment in variable annuities. Therefore, these products are a riskier investment. Unlike fixed annuities, variable annuities can be more volatile.

Deferred annuities

You can make additional income after retirement with a deferred annuity. They can be funded in a lump sum or in a series of payments. These annuities are similar to 401(k)s and IRAs. In fact, the tax advantages of deferred annuities are more compelling than the risk of losing money. A qualified tax professional can help you understand your options and determine the best choice.

Some annuities come with sales commissions, which can reach seven percent or more. Others come with administrative fees. While these annuities can be a good option for many people, they come with some disadvantages as well. Taxes on the growth of the money in deferred annuities are delayed until the payout phase, and income from deferred annuities is taxed at the customer's regular income tax rate.