2 Types of Annuities – Immediate vs Deferred

2 Types of Annuities – Immediate vs Deferred

types of annuities

2 Types of Annuities – Immediate vs Deferred

An annuity is a financial planning tool that allows individuals the guarantee of a steady income and certain additional benefits for a set period of time. In fact, many retirees take advantage of an annuity’s ability to generate a regular income after they’ve stopped working. However, if not properly planned and implemented an annuity can cost too much and be a complete waste of money. That why is it important to be familiar with the different types of annuities and how each one works before making any decisions.

What is an annuity?

Officially, an annuity is a contract between you and another party (typically an insurance company) whereby in exchange for a lump sum payment, the other party will agree to do four things:

  • Provide income for a certain period of time.
  • Provide for asset growth.
  • Offer a death benefit.
  • Offer a long-term care benefit.

2 Types of Annuities

There are two main types of annuities – fixed and variable.

Fixed Annuities

Fixed annuities allow buyers to lock in a rate of earning on their investment that, even over long periods of time, remain unaffected by the ups and downs of the market. There are four types of fixed annuities:

  • Immediate – starts paying income immediately, or within 1 year.
  • Deferred – starts paying income later, usually anywhere from 1-50 years.
  • Multi-Year Guarantee – pays out at a fixed interest rate for a certain number of years.
  • Indexed Annuity – increase or decrease in value depending on the performance of a baseline index such as the S&P 500 or Dow Jones.

Variable Annuity

Unlike a fixed annuity, a variable annuity’s payout correlates with the success of a certain market. Whether stocks, bonds, or a more specific investment niche, variable investments offer a broad spectrum of investment opportunities along with the protections an annuity provides. Some of the protections include a guarantee of a minimum income, available cash, or pay out upon death.

If you have a question about any type of annuities contact the financial pros at Potter and LaMarca today!