Understanding The Major Types Of Annuities

Preparing for retirement today is, in some ways, more complicated and difficult than ever before. Few simply plan on moving in with their children during their golden years - and most people want more out of retired life than just "getting by" on the "bare necessities."

That said, there are also more options today than ever before when it comes to arranging for future retirement income. Among these options are annuity accounts, but there are several types, including these five.

1. Fixed Annuities
Fixed annuities, including fixed index annuities - which combine the features of number one and number three of our list, involve a guaranteed income for the remainder of the investor's life.

The lifetime income aspect of FIAs is easily one of their most appealing features. It is also possible to arrange for payouts to continue throughout the life of a beneficiary after the policyholder has passed away.

The predictability and reliability of an FIA or another fixed annuity account should really be a component part of every retiree's income plan. You get a locked-in rate that stays steady for up to 10 years or at least will not fluctuate beyond certain preset parameters. Safety is the key here.

2. Variable Annuities
Many times, it might also be advisable to include a variable-rate annuity in your overall portfolio. Variable annuities should not be your core retirement income plan since they are less safe than fixed annuities, but they can provide a potential boost if used wisely.

Variable annuities, like mutual funds, are spread out over a number of different accounts so that your investment "eggs" are not all in "one basket." There is no guarantee as to ROI. Thus, there is greater risk but also greater potential for high earnings in a bull market.

3. Indexed Annuities
Indexed annuity accounts key earnings to some kind of a market index, such as the S&P 500, while guaranteeing at least a minimum ROI. In essence, they cap both the up and downside risks of your investment.

Fixed index annuities combine lifetime payments at a guaranteed minimum amount, protection of your principal, and indexing to the market so that substantial gains can be had during the good times while no actual losses are experienced during the bad times.

4. Immediate Annuities
Another annuity option is called an "immediate" annuity. It is so called because you begin to get payouts from your investment immediately - or nearly immediately, after buying the annuity.

Typically, you make a single lump-sum payment and then start collecting monthly dividends. You can continue to receive this income for a set term or for the remainder of your life.

5. Deferred Annuities
With deferred annuities, you let all earnings accumulate at first. This builds up your principal that will be used for payouts later on when you choose to begin receiving them. You can convert a deferred annuity to an immediate annuity at the desired point.

Remember that some annuities, like fixed index annuities, combine multiple features discussed above and may have other desirable features as well. But also remember to ask about all fees, commissions, limitations, and withdrawal stipulations or early withdrawal penalties before deciding on which annuity is right for you and your family.

To discuss the ins and outs of fixed index annuities and other annuity options with an experienced retirement planning consultant, contact Summerlin Benefits Consulting today for a free, no-obligation consultation.