If you have decided to invest in annuities for retirement or another season of life, you might be wondering about all the different annuities and what they mean for investing and for the future.

It’s important to learn about all the different annuities available so you can choose the one that is best for you and the investment plan you want to have for the future.

The Main Types of Annuities

Not sure about the different types of annuities? Here is a quick breakdown.

Fixed Annuities

To start, an annuity can either be fixed or variable. Fixed annuities are considered to be safer because are getting paid a guaranteed amount in the future. The exact date of the payout will depend on your contract. If you are investing an immediate payout, the money will come right away.

Unless you pay for an annuity that adjusts itself according to inflation, you might not be able to get all the payout you’re expecting because the interest can change and the annuity will lose the purchasing power it has if inflation has become bad.

Variable Annuities

Variable annuities are different because of the performance of the annuity you choose. If you choose a well-performing annuity, you will be able to see your account grow and receive a very large payout.

You can either get a variable annuity where you will be paid according to how the annuity is performing or you can get a fixed payout where you will get a set amount even if the annuity is performing better than expected.

When you have a variable annuity, you are agreeing to bring some risk into your investments. People usually take risks because they want to get more money and they hope they can earn bigger profits.

Most of the time, people begin with fixed annuities and they start investing in variable annuities once they have started investing and they have some experience under their belt.

Immediate Annuities

When you make the investment for your annuity, you can either make it immediate or deferred. Whether you want immediate or deferred basically depends on when you want to start earning the income. Do you want income now or do you want to get it at a future date?

Deferred Annuities

Many people choose to get deferred annuities because it allows the money to grow as much as possible before they reach the age of retirement. Deferred annuities are also better for retirement because they do not begin to earn tax until after you have withdrawn the money. This works very similar to IRAs and 401ks. Over time, this money could grow a lot larger than the money you originally invested.

Immediate annuities are just like the name sounds. You will start getting income payments from it as soon as there is a lump sum made to the insurance company.

Now that you know the differences between the annuities, you might have an idea of how fixed deferred annuities are a little more complicated than some of the other annuities that exist. Also, keep in mind that annuities are either deferred or immediate and they are also fixed or variable. So, there will be two names for each annuity.

Fixed Deferred Annuities

If you want to make sure your investments are safe from market conditions, then you might want to consider investing in fixed deferred annuities. You are able to collect the interest rate on a fixed rate so you don’t need to worry about fluctuations but you are also able to keep the interest tax deferred unless you begin making withdrawals.

One of the best parts about this investment is that you are guaranteed a certain interest rate over time. When you have less exposure to the market, it means your principal amount is well protected. You are able to choose when you want to start receiving the income.

Benefits of Deferred Fixed Annuity

There are many reasons why you might want to invest in a deferred fixed annuity. Here are some of the main reasons to consider:

Free withdrawals. Each year, you will be available to withdraw a certain amount of the balance which can ensure you are able to access some income should you need it. Sometimes you even withdraw up to 10% of the money without facing penalties.

Reliable. Since you have a set interest rate over time you always know what kind of interest to expect and you know that you will see your savings growing for the future.

Added death benefit. If you die before you retire and access the income, then your beneficiaries will be able to receive the income on your behalf. If you have people you want to name as death beneficiaries, make sure you do so on your annuity contract and ask the financial advisors how to do so.

One of the things people like the most about deferred fixed annuities is that you always have a guaranteed rate of return which allows you to know exactly the interest you are earning and how much you will earn during the contract period. As long as you don’t make withdrawals, you will see that you have a large sum of money to greet you in retirement.

Buying Fixed Deferred Annuities

One of the best ways to buy a fixed deferred annuity is to assess it through your financial planner. They can ask you what your financial goals are and what you plan to do with your annuities and other investments.

They can then recommend an annuity that might work for you and find one that is best suited for your financial situation.

If you like their suggestions, you can then secure the annuity and buy it.

The Bottom Line

A deferred fixed annuity is a little more complicated than some of the other annuity options because you will have to wait until you retire or reach a set time before you gain access to the money. Since the interest rate is fixed though, you know how much income you will earn.