There are many types of annuities out there to consider for your investments, but all in all it boils down to two basic annuity types. For now, try to think of annuities in these categories, as it will keep things simple for you as you continue to learn. Of these two basic types, there are deferred annuities and immediate annuities.
There are two subcategories within these two larger categories of annuities. These are the fixed annuity and the variable annuity and these will play a role in your payout. It will determine if you get a fixed sum payout or one that is connected to the performance of the annuity investment market. So now that we understand that there are two main types of annuities and two smaller categories, let’s take a deeper look at these concepts.
Immediate and Deferred Annuity Types
The main types of annuities are deferred and immediate annuities. If you were to choose a deferred annuity, you are choosing to invest your money regularly until the chosen time to being withdrawing. That time is usually retirement, which allows the longest time period for your investment to grow.
The second annuity type is the immediate annuity, which begins paying you directly after payment into the investment, is received. This is beneficial to those who are approaching the retirement age but haven’t quite made the investments they’d have liked. They can put their money into the account and immediately begin getting trickled payments to help them regulate their expenses.
If you are able to create a deferred annuity and can wait for your payments to begin, then certainly this is the better choice, as your investment will grow in time. It will accumulate into quite the nest egg for retirement. The other interesting fact about deferred annuities is that they can be converted into an immediate annuity if you need to go ahead and being collecting your money.
Subcategory Types of Annuities: Fixed and Variable
Within the major categories of deferred and immediate annuities, there are two subcategories we mentioned earlier. Those are the fixed annuity and the variable annuity. In the fixed annuity you will get a lower interest rate of growth but a guaranteed value at the time of payout. This is a secure investment that you can rest easy with.
However, with a variable annuity you take a risk. If the market performs well, then the annuity will earn a larger interest rate than if you took a fixed annuity. There is always the chance, though, that the market that the annuity invests in may perform poorly, leaving you worse off than if you took a fixed annuity.
So it really comes down to preference and style. If you can wait to be paid out, then go for a deferred annuity. If you need the money soon, go for the immediate annuity. Within those types you can risk and possibly make a lot of money on a variable annuity, or you can rid yourself of the risk by taking a fixed annuity. Just think clearly before choosing your annuity.