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Fixed, Indexed, Variable and Immediate

In “The Four Types of Annuities” by Stephen P. Poitevint of The Post-Searchlight, Poitevant explains the four basic types of annuities.  Annuity products in general are increasing in popularity because investors want to make sure that their money lasts as long as they do.

Fixed annuities offer a guaranteed principal and interest rate with an up front purchase from an insurance company.  Fixed annuity rates vary but are currently around 4.5%.  Indexed annuities are a type of fixed annuity where your principal is guaranteed but in exchange for giving up your guaranteed interest, you receive the chance to earn added interest based on a stock market index increase.  Investors like this type of annuity because of the “floor” associated with it:  the value will not fall if the market does.

Variable annuities are based on the performance of the market and do not guarantee an interest rate, but a death benefit rider will ensure that your beneficiaries will receive at least the principal you invested, even if your account has declined in value.  There are many additional riders that can be added to your purchase with additional guarantees at a cost.  The first three types of annuities offer a stream of income starting at some point in the future, but immediate annuities begin payouts immediately.  The time frame you will receive payments is determined at the purchase and can last for any time frame up to life.  The most common type is lifetime or 20 years, which is known as “life or period certain” and immediate annuities can be either variable or fixed.

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