Examine Various Types Of Annuities
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Are you planning to buy an annuity plan to secure a peaceful and posh life in the days after your retirement? Then make sure you know about all the different types of annuity plans before you settle on one. You should be extra peculiar about the plan you are going to buy, as they will decide the amount and duration of the steady income that you will receive after retirement. And you wouldn’t want to risk getting into a scheme that doesn’t fulfill your choices. So, keep reading to know the different types of annuities.
Know All About The Different Types of Annuities
Following are the different types of annuities that you should know about:
1. Single Premium Immediate Annuity (SPIA)
Also known as the income annuity or immediate annuity, the single premium immediate annuity is backed up by a single payment. You can invest the lump sum for a long time or a short time. It depends on your choice and willingness. You can even start getting steady income from your invested amount in less than a year. People usually fund in a single premium immediate annuity from the sale of a stock or asset or from a retirement plan.
2. Flexible Premium Annuity
A flexible premium annuity gives you the flexibility to make the purchase through multiple payments. There is no compulsion that you will have to fund the annuity at just one time. These kinds of annuities can only be deferred annuities. It means that there is a certain set of criteria that need to be fulfilled in the annuity, then only you can withdraw money from it. Make sure you know about the criteria properly in advance.
3. Deferred Annuity
Deferred annuity promises to pay the investor a lump sum amount in the future. In this, you make payments in the annuity for a period of time, and in return, the insurance company gives you a steady income in your retirement days. You can fix the date from which you want to start receiving the payback initially in the contract.
Tax is deferred in the deferred annuity, which means you are not supposed to pay taxes until you start withdrawing the money.
4. Immediate Annuity
Unlike deferred annuities, immediate annuities start giving payments immediately. You make one lump sum deposit to the insurance company, and they will start paying you out in one time period after the annuity was bought. You can decide the time period in which you want to receive the payments.
5. Fixed Period Annuity
A fixed annuity pays you over a specific period of time. In this, you can make the payment in one lump sum amount or over a period of time, and it will start paying you out from your retirement for a specific amount of time. After the specified time has passed, the payments will stop coming.
In case you die before you have received the whole amount of the annuity, the rest of your savings amount, in addition to the interest growth, will be passed to the company you bought the insurance from.
6. Lifetime Annuity
A lifetime annuity gives you a steady source of income for the rest of your life. You will receive the payments for as long as you live, and, in some cases, the beneficiary stated in the initial contract also receives the payment after your death. It depends on the contract that you have signed.
The amount of payment depends on your health and age. If you are younger and healthier, the payment amount will be small as you will receive the payment for a long period of time.
7. Variable Annuity
In this annuity, the contract will state that the payment amount will depend on the growth and portfolio of the sub-accounts. The sub-accounts work in a similar fashion to mutual funds and fund the growth of your annuity.
Your payment amount will be large if the sub-accounts are performing well and small if they are not.
8. Multi-Year Guaranteed Annuity (MYGA)
In this annuity, the insurance companies offer a fixed interest rate on your invested amount for the contracted period of time. It typically ranges between one to ten years.
Your MYGA annuity can be purchased using either a non-qualified fund or a qualified fund. In a qualified fund, you will pay the taxes on withdrawal for the principal amount along with interest, while in a non-qualified fund, you only have to pay the tax for the interest.
9. Fixed-Index Annuity
In this annuity, the contract you signed with the insurance company states that the amount of payment you will receive after retirement will depend on the growth of an intrinsic stock market index. It is more or less similar to investing in stocks; the only thing is that your principal amount will stay protected from any kind of loss.
Endnotes
When you are making retirement plans, an annuity contract should come first and foremost on your list. It will give you a steady source of income after your working days are over. There are various types of annuities, and all of them function in different ways. So, make sure to know all about the distinctive annuities before you buy any of them.
Also Read: How Can I Be Financially Self-Sufficient After I Retire?
