What are the Different Types of Annuities?

Earlier in the week, we took a look at the basics of annuities. Now that you know what is an annuity, let’s take a look at the types of annuities.

Different Types of Annuities (Image: Flickr)

There are several different types of annuities tailored to different types of situations and needs. Generally, annuities either depend on the timing of the payout, the method of investment, and the amount of liquidity that the annuity will have.

Immediate annuities and deferred annuities, as the name suggest, differ on when you receive the money from the fund. Immediate annuities have the investor receive the money immediately after investing. If you need immediate income from your annuity, the immediate annuity is the right choice. Deferred annuities are typically pursued for those who want to save for retirement, as the investor receives payments at some future date. While deferred annuities tend to be purchased either in lump sums or with periodic payments, immediate annuities are generally purchased with only a lump sum.

Fixed annuities and variable annuities depend on the method of investment and the current state of the economy. If the economy is weak, a fixed annuity is the safer bet. These annuities are invested in government securities and other low-risk investments so that you are guaranteed to keep your money safe. However, if the economy is strong and you want a chance to grow your savings, variable annuities are the better choice. There are many different investment options and you can switch between them at no cost.

You can also choose between annuities with and without withdrawal penalties. Although choosing an annuity with a withdrawal penalty seems counterproductive, many of these investment packages offer sizeable bonuses. Annuities without withdrawal penalties may be the better choice if you need access to your money at any given moment. Your broker may not tell you about such annuities because they pay the broker a lower fee, so make sure to ask about them if they are what you want.