Annuities are fixed payments made at a set interval. There are two primary types of annuities that can be used to protect your savings and/or generate an increase in income: deferred and income annuities. For deferred annuities, there are deferred variable annuities and deferred fixed annuities. The primary difference is that variable annuities provide the opportunity for investment growth, which comes with the risk of market volatility; whereas, fixed annuities have a guaranteed rate of return based on a set timeline providing a less-risky investment.
For income annuities, the two types are deferred and immediate fixed income, and they are typically most appropriate for investors and people who are nearing retirement. Deferred income annuities have a deferral time frame before the income payments start, which can mean a higher income payment. Immediate fixed income annuities later provide an income payment that is guaranteed and cannot be impacted by market changes. A couple other final, key things to know about annuities is that they are not insured with the Federal Deposit Insurance Corporation (FDIC), and they can be subject to a 10% IRS penalty if withdrawals are made before the age of 59 ½.
