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Step 1
Fixed annuities - This type of annuity earns a guaranteed rate of interest for a specific time period which is established by the terms of the contract with the insurance company. Once the guaranteed period is over, a new interest rate is set. However, since the idea behind a fixed annuity is to establish a long term guarantee of both earnings and principle, the recipient will most likely want to set a time period that is based on their life expectancy in retirement.
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Step 2
Variable annuities — With this type, the account value of your annuity is subject to market risk and may fluctuate in value which means your contributions and earnings are not guaranteed resulting in a possible loss of principal. Of course, if an individual is willing to take risks with their money for the possibility of growth potential then a variable annuity is certainly a good option to consider.
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Step 3
Immediate annuities — This type of annuity allows for the immediate option of payments begin as soon as they are purchased. Although immediate annuities are geared towards a single lump-sum payment from an inheritance, settlement or sale of a home you can also arrange to receive your money in regularly scheduled payments. You may also fund your annuity with distributions from a 401K or an IRA.
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Step 4
Deferred annuities — With this type of annuity, payments start to pay out after a period of time in which your money is invested on a tax-deferred basis. In other words, a deferred annuity is targeted towards those who want to save for retirement using a tax-sheltered vehicle while looking for better than average savings rates. Of course, you will be taxed on withdrawals much like a 401K or a Traditional IRA.
