During the Great Depression, annuities for retirement became popular because of the volatility of the stock market. People worried about what this would do to their retirement funds.
What are annuities?
Annuities are contracts between an individual and an insurance company. The purpose of this product is to guarantee income in retirement. When someone buys an annuity, they make either a single payment or a series of payments.
The insurer in turn makes payments to the person in a single sum of money or a series of payments over time with each of the various types of annuities for retirement.
When you buy an annuity, you get your payments back plus the investment income and gains. There are no tax payments on the income and investment gains until you withdraw the money.
Saving for retirement now is essential for a comfortable future. If you’re wondering how to save for retirement, keep reading this guide to the most common types of annuities for retirement.
Contents
Variable Annuities
This type of annuity comes with a bigger risk than other types.
It’s a tax-deferred investment product and it allows the owner to participate in investments like stocks, bonds, and mutual funds. It’s similar to a 401(k) account and the sub-accounts help keep up with and sometimes outpace inflation.
These annuities are popular with retirees and pre-retirees hoping their capital will appreciate and offer them guaranteed lifetime income.
Fixed Annuities
This is the type of annuity that is easiest to understand. When you buy a fixed annuity, the insurance company gives you a guaranteed fixed interest rate on your investment once you agree to the length of your guaranteed period.
When your contract ends, you have the option to annuitize the contract, renew it, or roll your money into another annuity contract or retirement account.
Immediate Annuities
This type is just like a life insurance policy. The investor gives the insurer a certain amount of money in return for regular income payments until death or for a specified period of time. These are popular with people who are close to or already at retirement age.
Deferred Annuities
These annuities provide guaranteed income either in one payment or monthly payments beginning on a future date. The insurer takes your money or monthly premiums and invests the money in an agreed-upon growth option.
Deferred annuities are a great choice if you want to contribute your retirement income on a tax-deferred basis and there are no contribution limits.
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Types Of Annuities For Retirement: Which One Is Right For You?
Now that you know more about the most common types of annuities for retirement, you can choose the one that’s right for you to help you meet your retirement goals.
You’ll enjoy a sense of income confidence to take you through your retirement years. Speak to a financial professional to learn more.
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