There are several types of annuities available in the market. Some of the most common types of annuities are:
- Fixed Annuities: Fixed annuities offer a fixed rate of return for a specific period of time. The insurance company invests the premium in conservative investments like bonds or CDs, and the investor receives a fixed payment on a regular basis. Fixed annuities are considered low-risk investments.
- Variable Annuities: Variable annuities offer a range of investment options, such as mutual funds or stocks, and the return on the investment depends on the performance of these investments. Variable annuities are riskier than fixed annuities but offer the potential for higher returns.
- Indexed Annuities: Indexed annuities offer a return that is linked to a stock market index, such as the S&P 500. The return is based on the performance of the index, subject to a cap and a floor.
- Immediate Annuities: Immediate annuities start paying out immediately after the initial payment is made. They are typically used to provide a regular income in retirement.
- Deferred Annuities: Deferred annuities start paying out at a later date, usually after a specific number of years or upon reaching a certain age. They are often used as a retirement planning tool.
- Fixed Index Annuities: Fixed index annuities offer a guaranteed minimum interest rate and a return that is linked to a stock market index. The return is based on the performance of the index, subject to a cap and a floor.
- Lifetime Annuities: Lifetime annuities pay out for the remainder of the investor’s life. They are often used to provide a guaranteed income in retirement.
- Joint and Survivor Annuities: Joint and survivor annuities pay out for the lives of two individuals, such as a married couple. They can be structured to pay out to the surviving spouse after the death of the first spouse.
It is essential to understand the terms and fees of each type of annuity before purchasing one, as they can have different risks and benefits.