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Different Types and Classifications of Fixed Annuity

When it comes to fixed annuity, you must know that you as a buyer have two payment options. First, we have the immediate annuity where you will receive the income payment immediately you start the annuity normally within a month or one year from the date you purchased the annuity. Secondly, there is the deferred annuity which operates in a way that they will provide you with income payments at a future date and it is usually stated in the contract. It is actually a way of accumulating cash which is not taxable before the retirement. The money is usually received in a lump sum or they are paid in installments once the annuity matures.

Fixed annuity is a useful tool when it comes to financial planning especially when you are planning for retirement. If you are looking for a steady and a guaranteed income, fixed annuity is the way to go. However, it is always good to understand a fact before making any decision as to matters that are concerned with investment. If possible, look for a financial adviser to guide you on what to do. Make sure that you take a careful consideration before investing.

Apart from the two types of fixed annuity classified above, immediate and differed, fixed annuities can also be classified into joint and survivor annuity, equity-indexed annuity, annuity certain, joint annuity, life annuity and life annuity certain among others. The thing that differentiates these annuities is the duration of the payouts, the payment certainty, bonus stipulation, and the designated life on the contract.

The good thing about these types of fixed annuity is they pay a fixed dollar amount for the period of the investment which is a very appealing feature at the time of market volatility. They are similar to CDs and they give a guaranteed payment for the payout period. Fixed annuities do pay a minimum interest rate when the market is down and they give a bonus in market up years. This is important in the sense that it participates in market upswings and at the same time protects the principal of your investment.

Let’s discuss the differed and the immediate types of fixed annuity.  There is not so much difference between the two except that deferred annuity has an accumulation component of the front end. The funds are usually deposited in an accumulation account that is normally credited annually with a rate of interest. The amount that is in the accumulation account is not taxed until it is withdrawn hence giving room for faster growth. Deferred annuities are accumulation vehicles for those individuals who are seeking tax advantage.

The amount in the accumulating funds in case of deferred annuity can actually be converted into immediate annuity allowing the investors to change from guaranteed accumulation duration to a guaranteed income and this is beneficial in the sense that it extends the deferral of taxes throughout the payment period. In conclusion, immediate annuities are preferred for those individuals who want an instant source of income and the deferred annuities are for people who want to save some money for the future.