-
Step 1
Clarify the Categories:
There are seemingly many annuity investment choices: fixed immediate annuities, variable deferred annuities, single-premium, flexible-premium, equity indexed, etc.
Forget all of that! In fact there are only 3 fundamentally different annuity types: 1) fixed, 2) variable, and 3) equity-indexed. Everything else is just a feature or option of these 3 types. -
Step 2
Is a Fixed Annuity Right for You?
Fixed annuities are similar to CDs. You pay an insurance company a single large sum (the premium), which it will return at a later date with interest. Interest rates typically range from 3-10% depending on the length of term and the competitiveness of the insurer.
Fixed annuities are secure because you can't lose capital. They're ideal for retirees, offering better rates and features than CDs. -
Step 3
Is a Variable Annuity Right for You?
Variable annuities are similar to mutual funds. You invest in a portfolio of equities (stocks and bonds) that you hope will grow in the future. Unlike fixed annuities, there is no guaranteed interest rate, rather it depends on your portfolio's performance.
Variable annuities are riskier than fixed annuities because you're playing the market, but, they also offer greater growth potential (14% average). Variable annuities have better benefits and features than many mutual funds. -
Step 4
Is an Equity-Indexed Annuity Right For You?
Equity-indexed annuities are a mix between fixed and variable. You give the insurance company a sum of money to be invested in a stock index, like the S&P 500. Depending on the performance of this index, you split the earning with the insurance company.
Equity-indexed annuities are secure because in exchange for giving the insurance company a split of the earning, they secure your potential loss of capital. This means that in bad years, when the S&P loses money, you're still paid a minimal 2-3% interest. -
Step 5
So Which Is Right For Me?
1. Fixed: ideal for retirees or very conservative investors
2. Variable: ideal for investors seeking aggressive growth
3. Equity-Indexed: ideal for investors torn between #1 and #2
Now that you have a sense of which annuity is right for you, be sure to get explore it's feature's in-depth. For a complete discussion of fixed, variable, and equity-indexed annuity pros and cons, features, advantages, disadvantages, potential pitfalls, and performance analysis, be sure to visit the Annuity Investment Guide below. When you're ready, get actual rates on brand-name annuities.
