Annuity Types in a Retirement Income Plan

Some people don’t know how they can save more for their retirement. The best way to do this is by introducing an annuity in your retirement income plan. Annuities can help you save from tax benefits, and have other perks as well. There are many annuity types provided by insurance companies. You don’t need to look on different websites to search for every annuity type. In this article, you will learn about different types of annuities in retirement income and how they can benefit you in the long term. 5 types of annuities are:

1. Immediate Payment Annuity

Immediate annuities are also known as income or payout annuities. This annuity type is a replica or mirror image of a life insurance policy. Instead of paying regular premiums to the insurance company that makes a round-sum payment upon your death, you can pay with the annuity to the insurer with a lump sum of money in exchange for regular income payments until you die. These payment methods are available to you for 10-20 years or until you or your spouse is alive. 

2. Fixed Annuity

If you want a fixed annuity, this one is for you. A fixed annuity is a type of insurance agreement that promises to give the buyer a set, specific, and a guaranteed interest rate on their account contributions. If you compared fixed annuity to variable annuity plans, you will find that the variable annuity pays the interest that can fluctuate or alter based on the performance of investment criteria chosen by the account’s owner. While on the other hand, fixed annuities are used in retirement planning.

3. Deferred Annuity

A deferred annuity is an agreement or contract with an insurance provider company that claims to pay the owner a regular or fixed income. A deferred annuity is equivalent to holding CDs or other short-term fixed-income investments to the targeted maturity date. Investors use deferred annuities to multiply their retirement income like Social Security. Deferred annuities are different from immediate annuities because they start increasing the income right away. If the owner wants, they can convert a deferred annuity into an immediate annuity.

4. Indexed Annuity 

An indexed annuity is a type of annuity agreement that provides interest rates based on a market index’s performance, as the S&P 500. This annuity type is different from fixed annuities that pay a fixed amount of interest, and variable annuities, which stage their interest rates based on portfolios of securities chosen by the annuity owner. Indexed annuities are commonly referred to as fixed-indexed or equity-indexed annuities.

5. Individual Retirement Annuity

An Individual Retirement Annuity is similar to the individual retirement account, commonly known as the IRA. You can only invest in personal retirement annuities in fixed or variable annuities. IRAs offer an extensive range of investments. 

Individual Retirement Annuity comes with both Roth and Traditional versions, just like an IRA. It depends on the owner of the annuity if he/she wants to receive tax-free income later or take an upfront tax deduction right away.