An annuity is the only financial product that can provide a guaranteed* stream of income. By making a lump-sum payment or series of payments—you can receive guaranteed payments (sometimes called distributions or income payments) for a specified term, up to and including income for life.
Immediate annuity, deferred income annuity, fixed deferred annuity—you’ve got lifetime income options.
Annuities have a whole host of names, based on benefits and issuing companies, but at their core, they are best understood by their time line (immediate or deferred) and market exposure (variable).
Immediate annuity—income for life starts now.
If you’re looking to turn a lump sum of cash into a stream of income right away, an immediate annuity may be right for you. Sometimes referred to as an income annuity or a single premium immediate annuity (SPIA), an immediate annuity lets you immediately turn a lump sum of money into a guaranteed stream of income.
How much does an immediate annuity cost? There’s typically a minimum purchase amount, but ultimately, it depends on how much you’re willing to purchase. As with all annuities, the payout you receive depends on the lump sum you start with, any additional payments you make, the annuity’s payout rate, your gender, and your age when you begin receiving income.
Deferred income annuities—more time means more income.
A deferred income annuity begins distributing payments at a future date of your choice. Typically, you make a single lump-sum payment (or a series of payments) and wait until you’re ready to start receiving income. The longer your money has time to grow, the higher the income payments will be.
Fixed deferred annuity—safe and secure growth.
Fixed deferred annuities, also known as fixed annuities, provide stable, guaranteed growth. This makes them particularly attractive to folks looking for a way to protect assets for future retirement needs while still enjoying modest growth.
Fixed annuities can be purchased with a lump sum of money. They offer tax-deferred growth at a guaranteed interest rate for a specified period of time.
The money within a fixed annuity grows tax-deferred, but withdrawals made during this time period, but this specific time period (which varies by issuer and contract) is known as the surrender charge period and any withdrawal amount over the annual withdrawal limit is subject to a surrender charge. Once your surrender charge period has ended, you will have full access to your money. Typically, the surrender charge decreases over a number of years.
Variable annuities—more growth potential with built-in protections.
If you’re looking to tap into potential equities growth, and are willing to accept the market’s ups and downs, a variable annuity may be for you. The benefit of variable annuities is that they offer more opportunity for growth with access to riders which can be purchased to provide principal protection, or an enhanced death benefit, for example, —depending on the specific annuity you purchase. These optional features have additional costs.
The value of a variable annuity is based on the performance of an underlying portfolio of market investments. Variable annuities have the advantage of providing more choices in the way your money is invested. This market exposure may be needed if you’re looking for the opportunity to grow your retirement nest egg. Keep in mind that variable annuities are subject to market risk, including possible loss of principal.