What are the Different Types of Annuities?

Contemplating retirement would sometimes depend on how prepared you are for it. If you are opting for an early retirement, you should also be considering if you already have the means for it. This will usually depend on how much you have saved up for such an occasion.

Planning your retirement takes years and years of saving some of your hard-earned money. This will take a keen sense of investing them in order to get the most gains that will help make your upcoming retirement more comfortable.

One of the best investment vehicles available for you are annuities. Annuities can provide you with the safest and the most secure place for your money. The re are many types of annuities for you to choose from. The most common is the fixed annuity which an insurance company guarantees for you the principal and the minimum rate of interest.

This means that you are guaranteed of putting your money in an investment vehicle where your money will grow and not drop in value as long as your insurance company remains financially sound. The annuity value or benefits can be given to you in the form of a fixed dollar amount or a set interest rate value. Fixed annuities are usually the investment of choice for the long term since your money would usually remain locked for as long as ten to fifteen years before you can avail of the payouts. 

Another long term annnuity product that you can avail is the variable type. A variable annuity differs from a fixed annuity in the sense that the insurance company doesn’t guarantee a rate of return for it. Instead, it allows the investor to allocate funds to a number of investment options which might include putting money on either the bond or equity market or both. The rate of return will depend on the performance of these investment options. Variable annuities offer a higher rate of return than a fixed annuity but may have a higher investment risk involved in the process.

Your annuity can also either be deferred or immediate.  A deferred annuity is the type that allows you to receive premiums and investment changes for payout at an agreed later date. Receiving the payout might take a very long time that can take decades. A benefit of deferred annuities is that it can allow your money to earn more by leaving it untouched for a long periods as it earns through compounding. This is especially good for your retirement fund.

An immediate annuity, on the other hand, is designed for those who can’t wait that long to enjoy payouts for the investment. This type of annuity enables you to receive an income payout right after the immediate annuity is bought. The time period would depend on how often you want the income to be paid. If the income that you agreed is to be paid  for monthly, then the first payout come out one month after the immediate annuity is bought. Immediate annuities are usually bought at a one time payment and might cost more than the usual fixed or variable annuity.





Posted by Ardent Editor on Feb 26 2007 in Annuities

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