Types of Annuities
Discovering Annuities
For people planning out to have a comfortable retirement in the near future, the hunt for the most attractive income stream instrument can be long and hard. There are a number of investments available that can provide income streams for future retirees. But the question would be which instrument will offer the best for the up and coming retiree?
Of the many investment income opportunities available out there, annuities seem to offer the best when it comes to looking after the future of individuals as retirees.
Annuities are income generating instruments that can become very valuable income sources when one finally decides to retire or even just to supplement an existing income source. There are different types of annuities that the individual can choose from. Each type offers a host of different advantages and benefits depending on the needs of each individual.
The most common type of annuity option available for people is the fixed annuity. A fixed annuity allows the individual to place money on a fund that can provide fixed benefits at a dollar amount or by a fixed interest rate as it grows. The insurance company usually guarantees the principal and the minimum rate of interest for the amount invested. This will ensure that the fixed annuity will not drop in value and can be a relatively safe investment as long as the insurance company remains financially sound.
There are two types of fixed annuities for people to choose from. There is the equity-indexed annuity and the market-value–adjusted annuity. The equity–indexed annuity works just like a fixed annuity that credits a minimum rate of interest but also has a feature that has its value being based on the actual performance of a specified stock index.
This is computed into the value of the annuity as a fraction of the said index’s total return. The market-value–adjusted annuity combines two desirable features that an annuity can have. One, it has the ability to select and fix the time period as well as the interest rate from which the annuity will grow.
Two, it provides the investor with the option to withdraw money from the annuity even before the end of the selected time period. The withdrawal option is achieved by adjusting the annuity’s value in order to reflect the change in the interest rate levels from the selected time period up to the time of the withdrawal.
There are also other types of annuity options available aside from the fixed annuity. There’s the deferred annuity is the option for those planning on investing their money for the long term. It allows the investor to receive premiums and investment changes for possible payout at a later time which can be set on deferred stage for decades.
For those people not willing to wait that long, there is the immediate annuity that is designed to pay an income right after the immediate annuity policy is bought. This will depend on how often the income is to be paid. If the income chosen is monthly, then the first payout is given one month after the immediate annuity is bought.
The re is also the fixed period annuity that pays an income for a specified period of time. The amount being paid in this type of annuity doesn’t depend on the age of the person buying the annuity. Instead, the payments are dependent on the amount that is being paid into the annuity, the length of the payout period and the set interest rate for the length of the payout period.