Annuity is an essential part of every individual’s life, especially for those who want to spend their retirement years with extreme comfort and no perplexities. Living a peaceful life after retirement is something many deserve for working endlessly over the tough years of their life. An annuity can either improve the future of a person, so it is important to choose the right kind of annuity. If you haven’t chosen your annuity plan yet, here are the types you should know about:
Deferred annuity works in a simple manner. The bearer has to start making payments according to the decided amount and then wait until their stipulated time frame comes, where they will become eligible to receive the payouts. Deferred annuity plans may sound to you like keeping the money in the bank but actually it isn’t. The major difference between investing money in a deferred annuity and depositing the capital into a bank account is that the rate of interest is higher in annuities.
As the name suggests, an immediate annuity starts paying the bearer as soon as they start investing in an annuity plan. Immediate annuity plans are popular among individuals who have inherited large amounts of cash. The immediate annuity is perfect for them as it lets them invest their money and start receiving interest income on it right away. However, those who cannot afford to pay big amounts of money on a regular basis during their employment phases don’t consider an immediate annuity plan.
Fixed annuity means the bearer receives fixed amount of payouts. The receiving amounts are fixed because the plan is set at a predetermined and flat rate. The annuity rates are definitely decided on the mutual understand of the client and the insurance company at the time of purchasing the annuity plan. However, unlike the variable annuity (explained below) or other types of changeable annuities, the fixed annuity keeps providing the payouts according to the same interest rate.
Variable annuity type is considered as the most beneficial because when the market is changed and the interest rates go up, the bearer receives big amounts of payouts. However, a variable annuity is also the most risk-oriented type of annuity plan and when the market condition is not in the favor of the bearer, they can undergo financial tribulations as lower interest rates mean lower monthly/yearly payouts.
These are the basic types of annuities that everyone should be aware of while planning a stress free retirement. With a better knowledge of each type you can decide which annuity type would you prefer.