There are generally 3 types of Annuities
Fixed, Indexed, and Variable.
Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a specified minimum amount, such as your total purchase payments. While tax is deferred on earnings growth, when withdrawals are taken from the annuity, gains are taxed at ordinary income rates, and not capital gains rates. If you withdraw your money early from an annuity, you may pay substantial surrender charges to the insurance company, as well as tax penalties.
In a fixed annuity, the insurance company agrees to pay you no less than a specified rate of interest during the time that your account is growing. The insurance company also agrees that the periodic payments will be a specified amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.
In an indexed annuity, the insurance company credits you with a return that is based on changes in an index, such as the S&P 500 Composite Stock Price Index. Indexed annuity contracts also provide that the contract value will be no less than a specified minimum, regardless of index performance.
In a variable annuity, you can choose to invest your purchase payments from among a range of different investment options, typically mutual funds. The rate of return on your purchase payments, and the amount of the periodic payments you eventually receive, will vary depending on the performance of the investment options you have selected.
Annuity companies have awoken to the fact that retirees are becoming money savvy. Therefore, they are adding more riders and features including living benefits and return of premium. Satisfying the demands of those wanting to place there hard earned funds with these carriers.
Fact: Only 24% respondents of A survey felt they had saved enough to retire comfortably. It could also help explain why sales of income annuities are rising fast—up 6.8% since 2012. Because these products operate much like a pension, providing income for life, they can be a comfort to anyone who likes to know that they will always have money coming in to help meet expenses.