Annuities can be a great way to put money away for retirement, but there are many different types of annuities. For example, what is the difference between an immediate annuity and a deferred annuity? What is the difference between a single premium immediate annuity and a joint life deferred annuity? What factors should you consider when choosing an annuity product? These are just some of the questions that will be answered in this guide!
What Are The Different Types of Annuities?
1. Immediate Annuities
An immediate annuity (SPIA) is an insurance contract (with no cash value). A contract owner exchanges a lump sum of money with an insurance company for an immediate, irrevocable series of annuity payments guaranteed for the specified period of the contract.
This is what the lottery uses for their payout option.
2. Variable Annuities
A variable annuity is a tax-deferred investment product for retirement planning that allows you to participate in investments, including stocks, bonds, and mutual funds.
You get all the upside and the downside potential with a variable product.
Variable products offer greater risk than other product types.
You can lose money in a variable annuity.
3. Fixed Indexed Annuities
Fixed indexed annuities are a type of fixed annuity that earns interest based on changes in
a market index, which measures how the market or part of the market performs.
The interest rate is guaranteed never to be less than zero, even if the market goes down.
Your tax-sheltered retirement accounts get the opportunity to earn market gains with no downside potential and tax deferral.
4. Fixed Annuities
A fixed annuity provides a fixed guaranteed interest for the contract term, similar to a Certificate of Deposit (CD).
Your retirement savings earn a fixed guaranteed amount of interest annually for a fixed period of time. Sometimes called a “CD annuity.”
There are 2 types of fixed annuities, traditional fixed and Multi-Year Guarantee Annuity (MYGA).
5. Long-Term Care Annuities
A long-term care annuity is a tax-deferred fixed contract that provides an enhanced tax-free benefit to supplement qualified long-term care services and facilities.
6. Deferred Income Annuities
Deferred Income Annuities (DIA) is an income contract in which a consumer exchanges a lump sum of money upfront today for a deferred, irrevocable retirement income stream (over a fixed period of time or lifetime) in the future.
7. Two-Tiered Annuity
A two-tier annuity is a tax-deferred FIA contract where you invest money upfront, grow your investment during the accumulation period, and annuitize your future contract values into an irrevocable guaranteed income stream.
Annuitization is required.
8. Qualified Longevity Annuity Contract (QLAC)
A QLAC is a Deferred Income Annuity (DIA) is a deferred income annuity type funded specifically by a qualified retirement savings plan to defer Required Minimum Distributions (RMD).
9. Structured Settlement
A Structured Settlement is a structured, irrevocable series of periodic payments from an insurance company commonly court-ordered similar to a SPIA.
10. Secondary Market Annuity
A secondary market annuity resells an annuitized distribution (guaranteed income stream payments) in exchange for a lump sum now.
11. The Medicaid Annuity
A Medicaid Compliant Annuity is a unique SPIA meant to maintain a healthy elderly spouse’s lifestyle financially while their unhealthy spouse receives Medicaid.
12. The Charitable Gift Annuity
A charitable gift annuity is a transfer by a donor to a charitable organization. In return, the donor receives annuity payments. If the actuarial value of the annuity is less than the value of the donation, then the difference in value is declared a charitable deduction for federal tax purposes. The annuity payments to the donor are tax-free partial returns based on actuarial tables of life expect
13. Registered Index-Linked Annuity
The Registered Indexed-Linked Annuity is a hybrid of the fixed indexed and variable annuity. When an index performance is positive, the annuity may earn interest, limited by a cap or participation rate. Conversely, if the index performance declines, the annuity will earn zero interest and can lose value up to a “floor.”
Annuity Types At A Glance
| Variable Annuity | Fixed Index Annuity | Fixed Annuity | Immediate Annuity | Deferred Income Annuity | |
|---|---|---|---|---|---|
| Principal Protection | No | Yes | Yes | Yes | Yes |
| Access To Principal | Yes | Yes | Yes | No | No |
| Control Over Money | Yes | Yes | Yes | No | No |
| Tax-Deferred Growth | Yes | Yes | Yes | No | No |
| Guaranteed Growth | No | Yes | Yes | No | No |
| Guaranteed Income | Yes | Yes | Yes | Yes | Yes |
| Inflation Protection | Yes | Yes | No | Yes | Yes |
| Death Benefit | Yes | Yes | Yes | Yes/No | Yes/No |
| Long-Term Care Help | Yes | Yes | Yes | No | No |
what distinguishes a deferred annuity from an immediate annuity?
The difference between deferred and immediate annuities is when annuity benefit payments begin. Immediate annuities provide periodic income payments starting from one month but no later than one year. Deferred annuities provide periodic income payments from starting one month to the annuity’s maturity date.
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I’m a licensed financial professional. I’ve sold annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.
My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you.