What Kinds of Annuities Can I Buy?
An annuity is an account you open with an insurance company. You pay the insurance company a sum of money, and after a period of time, the insurance company pays you back in a series of payments. Your payments are based on an interest rate or on the performance of securities in which the account's funds are invested.
Fixed Single-Premium Immediate Annuity
With this type of annuity, you pay a single, lump-sum premium to the insurance company, and within one year of this payment, the insurance company starts to pay you. Payments can be for a set period of years or for your lifetime.
Fixed Single-Premium Deferred Annuity
Here, you again pay a single, lump-sum premium to the insurance company, but the payments back to you are "deferred" for a period of time while your funds earn interest. Payments usually begin after you reach retirement age.
Fixed Flexible-Premium Deferred Annuity
With this type of annuity, you pay the insurance company a series of premiums over time, and at a specified later date, the insurance company begins to make payments back to you.
Variable Immediate Annuity
With a variable immediate annuity, the insurance company starts paying you back within a year after you've made the premium payment. The amounts will vary based on the performance of the securities held in the account.
Variable Deferred Annuity
With this type of annuity, the insurance company starts paying you back at a specified time after you've paid the premium. Again, your account balance will vary based on the performance of securities held in the account.
An index annuity is similar to a variable deferred annuity, but the account value is tied to the performance of a stock or market index instead of to specific stocks or mutual funds.