Understanding Annuity Types
Learn about different types of annuities and find the right option for your retirement strategy.
What is an Annuity?
An annuity is a financial product designed to provide a steady income stream during retirement. It's essentially a contract between you and an insurance company where you make a lump sum payment or series of payments, and in return, the insurer agrees to make periodic payments to you, beginning either immediately or at some point in the future.
There are several types of annuities, each with different features and benefits. Understanding these differences is crucial to selecting the right annuity for your retirement goals.
Fixed Annuities
A fixed annuity provides a guaranteed interest rate and principal protection, making it a safe option for retirement income.
Benefits
- Guaranteed interest rates
- Principal protection
- Predictable income
- Tax-deferred growth
Considerations
- Lower returns than variable options
- Less flexibility
- Potential surrender charges
- Inflation risk
Ideal For
Conservative investors close to retirement who prioritize capital preservation and guaranteed income.
Learn More About Fixed AnnuitiesCurrent Market Snapshot
Current Rates
3.50% - 5.25%
Trend
Stable with slight upward trend
*Rates are approximations and may vary by provider, investment amount, and term length.
Variable Annuities
Variable annuities offer the potential for higher returns by investing in a portfolio of mutual funds, with returns based on market performance.
Benefits
- Potential for higher returns
- Investment choice and flexibility
- Tax-deferred growth
- Death benefits for heirs
Considerations
- Market risk to principal
- Higher fees than other annuities
- More complex structure
- Returns not guaranteed
Ideal For
Investors with a longer time horizon and higher risk tolerance who want growth potential.
Learn More About Variable AnnuitiesCurrent Market Snapshot
Current Rates
Based on market performance
Trend
Varies with market conditions
*Rates are approximations and may vary by provider, investment amount, and term length.
Indexed Annuities
Indexed annuities offer growth potential linked to market indexes while protecting your principal from market losses.
Benefits
- Potential for higher returns than fixed
- Principal protection
- Partial participation in market gains
- Tax-deferred growth
Considerations
- Caps on maximum returns
- Complex crediting methods
- Potential surrender charges
- Participation rates may change
Ideal For
Moderate investors looking for growth potential with downside protection.
Learn More About Indexed AnnuitiesCurrent Market Snapshot
Current Rates
4.00% - 8.50% caps
Trend
Increasing caps in rising rate environment
*Rates are approximations and may vary by provider, investment amount, and term length.
Immediate Annuities
Immediate annuities convert a lump sum into a guaranteed income stream that begins right away and continues for life or a set period.
Benefits
- Immediate income payments
- Guaranteed lifetime income
- Simple to understand
- Favorable taxation (partial)
Considerations
- Limited liquidity
- Loss of control of principal
- Fixed payments may lose purchasing power
- Rate locked at purchase
Ideal For
Retirees needing immediate income with longevity protection.
Learn More About Immediate AnnuitiesCurrent Market Snapshot
Current Rates
Varies by age (approximately 5.00% - 8.50%)
Trend
Improving with higher interest rates
*Rates are approximations and may vary by provider, investment amount, and term length.
Annuity Types Comparison
| Feature | Fixed | Variable | Indexed | Immediate |
|---|---|---|---|---|
| Principal Protection | ✓ | ✗ | ✓ | N/A |
| Market Participation | ✗ | ✓ | Partial | ✗ |
| Income Start | Now or Later | Now or Later | Now or Later | Immediate |
| Growth Potential | Low | High | Moderate | None |
| Fees | Low | High | Moderate | Low |
| Risk Level | Low | High | Moderate | Low |
Not Sure Which Annuity is Right for You?
Connect with a licensed professional who can help you choose the best annuity option for your retirement goals.