A number of the annuity products currently on the market can help provide a secure stream of income during retirement. Some annuities that may be suitable for your situation are fixed annuities, with principal protection and no market exposure, and fixed indexed annuities (FIAs), with principal protection and the potential for higher earnings with increases in a linked market index. Income riders are available on certain annuities, for an additional annual premium, to include protection against inflation and other benefits. Some of the policies available will include an up-front bonus that begins earning interest along with your premium amount immediately. Some of the features that are available to you through FIAs are bonuses, various crediting methods, and allocation options that give you choices for your money.

 

Most annuities have a surrender period for the first five to 15 years of ownership; early withdrawal will deplete your principal by the amount of the surrender charge still in force. Annuities which include a bonus may carry higher fees and charges than annuities without the bonus feature, may only accumulate interest prior to annuitization, and may not pay the bonus in case of early withdrawal. 

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TYPES OF ANNUITIES:

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FIXED ANNUITIES:
These are fixed interest investments issued by insurance companies. They pay guaranteed rates of interest, typically higher than bank CDs, and you can defer income or draw income immediately. These are popular among retirees and pre-retirees who want a no-cost, modest and guaranteed fixed investment.

 

FIXED INDEXED ANNUITIES (FIA):
These are essentially fixed annuities with a rate of interest that is added to your contract value if an underlying market index, such as the S&P 500, is positive. They typically offer a guaranteed minimum income benefit, and the chance of principal upside pegged to a market-based index, and protect against market downturns. A drawback is that upside potential is limited by a so-called participation rate, caps or a spread — all methods in which your return in a rising stock market is trimmed. These appeal to retirees and pre-retirees who want to conservatively participate in potential market appreciation without fuss and with downside principal protection.

 

IMMEDIATE ANNUITIES:
These are basically a mirror image of a life insurance policy. Instead of paying regular premiums to an insurer that makes a lump-sum payment upon death, the investor gives the insurer a lump sum in return for regular income payments until death, or for a specified period of time, typically starting one to 12 months after receipt of the investment. Payments are typically higher than other annuities because they include principal, as well as interest, and so also offer favorable tax treatment. These are popular among retirees and pre-retirees who need a higher-than-average stream of income and are comfortable sacrificing principal in exchange for higher lifelong income.

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Types of Immediate Annuities

 

• Fixed Income Annuities:
  Most immediate annuities are fixed income annuities. These annuities provide a stream of income payments for the rest of your life or a set period of time.

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• Single Premium Immediate Annuities (SPIA):
  Virtually all immediate annuities are single-premium annuities, which means they are a one-time purchase and cannot be subsequently changed. Immediate annuities have no fees. They are also tax-efficient because an exclusion ratio is used in dispersing funds.

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• Immediate Variable Annuities:
  Payments begin within 30 days and last for life. They may pay more than a fixed income annuity if the stock market does well over the life of the investment. Payments will vary, however, and could fare worse over time.