How do the different types of annuities work?
An immediate annuity pays you a fixed amount on a regular basis over a period of time or for life. For example, you might buy an immediate annuity that pays you $100 per month for ten years. Or, you might buy an annuity that pays you $3,000 per year for the rest of your life. A deferred annuity accumulates interest and dividends until you choose to withdraw the money. If the deferred annuity is still in place at your death, all of the income will be paid to your beneficiary and taxed. An annuity can be “fixed,” meaning it has a set rate of interest at the time you buy it. Or, it can be “variable,” meaning your return varies based on the success of the investments made by the insurance company. Q: Will my money be secure if I invest in an annuity? A: Annuities are investments. When you buy an annuity, your contract with the insurance company is tied directly to investment results. The financial strength of the insurance company is very important. If the insurance company has or develops
