Types of Annuities
There are three main types of annuities.
The first, most common type is called a fixed annuity. This annuity provides the safety that most people associate annuities with. It provides a fixed rate of return for a fixed period of time, or for life. Recently, the percentage of total annuities purchased that are fixed, has increased due to the recession. With the US experiencing such low interest rates, fixed annuities are still offering up to 6-8% in some cases, providing quite an opportunity over similar low risk investments.
Variable annuities are the second most common type. They allow investors to invest in the stock market, mutual funds, or other investments while enjoying the tax deferred benefits. With more risk than fixed, variable annuities are most commonly purchased by "younger" purchasers still looking to grow income for retirement, versus retirees simply looking to protect the nest egg they already have.
Index annuities are a hybrid of variable and fixed in terms of return and risk. With indexed, money is put in the S and P 500 (most commonly), but usually comes with a fixed option, providing investors with protection in the case that market conditions shift.
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Annuities can be a smart, safe retirement vehicle that provides guaranteed rates of return with safety against losses and tax deferrals.
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