Saving for retirement can be stressful enough without having to determine which kind of account is best for your particular situation. Terms such as fixed deferred annuities, variable deferred annuities, and immediate annuities can make a person’s head spin. Each type of retirement account is unique in the way it invests money and how the owner receives the returns on their investment. There are two types of annuities, immediate and deferred, and two ways to invest, fixed or variable.
Deferred annuities are typically what they sound like: money invested that will be returned at a later date. This type of account is meant to sit and accumulate money over time. This type of account is usually used for younger people looking to invest in their retirement because there is an annuitization period of usually between 10-30 years, meaning they must wait that long to begin receiving money from the annuity. When you have a deferred annuity, you will also have to decide if you want it to be a fixed or variable account. This determines what kind of accounts the money will be invested in. A fixed account will gain interest based on a set percentage of the company who holds the money, which means you can never lose money but you can also never gain money. A variable account will be invested in the stock market, which means a person has potential to earn more but also to lose more.
These annuities are typically for people nearing retirement, as they allow a person to start withdrawing money after a very short annuitization period, such as six months. These annuities also come in fixed or variable options depending on how a person would like to invest. Although immediate annuities include payout quickly, the money typically doesn’t last as long as in a deferred annuity.