Which annuities

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People typically buy annuities to help manage their income in retirement. Annuities provide three things:. There are two phases to annuities, the accumulation phase and the payout phase. All investments carry a level of risk. Make sure you consider the financial strength of the insurance company issuing the annuity.

You want to be sure the company will still be around, and financially sound, during your payout phase. Variable annuities have a number of features that you need to understand before you invest. Understand that variable annuities are designed as an investment for long-term goals, such as retirement. They are not suitable for short-term goals because you typically will pay substantial taxes and charges or other penalties if you withdraw your money early.

Variable annuities also involve investment risks, just as mutual funds do. Insurance companies sell annuities, as do some banks, brokerage firms, and mutual fund companies.

Make sure you read and understand your annuity contract. All fees should be clearly stated in the contract. Your most important source of information about investment options within a variable annuity is the mutual fund prospectus. Request prospectuses for all the mutual fund options you might want to select. Read the prospectuses carefully before you decide how to allocate your purchase payments among the investment options.

Realize that if you are investing in a variable annuity through a tax-advantaged retirement plan, such as a k plan or an Individual Retirement Account, you will get no additional tax advantages from a variable annuity. Surrender charges will reduce the value of -- and the return on -- your investment. You will pay several charges when you invest in a variable annuity.

Be sure you understand all charges before you invest. Besides surrender charges, there are a number of other charges, including:. Variable annuities are considered to be securities. All broker-dealers and investment advisers that sell variable annuities must be registered. Before buying an annuity from a broker or adviser, confirm that they are registered using the free and simple search tool on Investor.

In most cases, the investments offered within a variable annuity are mutual funds. By law, each mutual fund is required to file a prospectus and regular shareholder reports with the SEC.

This phase ends at the onset of the distribution stage, when you're ready to begin spending the money to create an income in retirement. With annuities, this is called annuitization — or the process of converting your annuity into regular payments for retirement. How you build your retirement funds and cash value accumulation and then convert those funds into guaranteed income distribution will depend on the type of annuity you purchase.

There are four basic types of annuities to meet your needs: immediate fixed, immediate variable, deferred fixed, and deferred variable annuities. These four types are based on two primary factors: when you want to start receiving payments and how you would like your annuity to grow.

One of the trickier elements in retirement income planning is figuring out how long you're going to live. Immediate annuities are designed specifically to provide an immediate guaranteed lifetime payout.

The drawback is that you're trading liquidity for guaranteed income — so you generally won't have access to that full lump sum if you need it for emergencies. But if securing lifetime income is your top concern, then a lifetime immediate annuity could be the right option for you.

What makes immediate annuities so appealing is that the fees are woven into the payout — you contribute a certain amount of money, and you know exactly how much money you will be receiving for the future, for the rest of your life and your spouse's life. Financial organizations like Thrivent that offer immediate annuities typically offer additional income payout options, like recurring payments over a fixed term, or until you die.

You may also have an optional death benefit, where you can have payments sent to people and causes of your choosing. Learn more: What is an immediate annuity, and how does it work?

Deferred annuities provide guaranteed income in the form of a lump sum or monthly income payments on a date in the future. You pay a lump sum or monthly premiums to the insurer, who will then invest them into the growth type you agreed on — fixed, variable or index we'll get to those in a minute. Depending on the investment type you choose, deferred annuities offer potential for the principal to grow before receiving payments. Deferred annuities are a great option if you want to contribute your retirement income on a tax-deferred basis — meaning you won't have to pay taxes until you take money out.

Unlike IRAs and k s, there are no contribution limits. Learn more: What is a deferred annuity, and how does it work? Fixed annuities are the simplest type of annuity to understand. The insurance company gives you a guaranteed fixed interest rate on your investment when you agree to a length of your guarantee period. That interest rate could last anywhere between a year and the full-length of your guarantee period.

When your contract is over, you can either annuitize your contract, renew your contract, or transfer your money into another annuity contract or retirement account. Because fixed annuities are based off the guaranteed interest rate and your income is not impacted by market volatility, you will know exactly how much your monthly payments will be — but it also won't benefit from a potential upswing in the market, so it may not keep pace with inflation.

Fixed annuities are better used for growing income in the accumulation phase, not for generating income in retirement. Learn more: What is a fixed annuity, and how does it work?

A variable annuity is a type of tax-deferred annuity contract that allows you to invest your money into sub-accounts, kind of like a k , plus the annuity contract that can guarantee lifetime income. With time, your sub-accounts can help you keep up with or even outpace inflation. Like mutual funds, sub-accounts are dependent on market risk and performance. Fortunately, variable annuities also come with a death benefit, an income rider that your beneficiaries are guaranteed income, too.

Additionally, Thrivent's guaranteed lifetime withdrawal benefit helps protects against longevity risk and market risk. The double protection can be very appealing if you are 15 years or less to retirement. A variable annuity can be a great addition to your retirement income plan if you've already maxed out your Roth IRA or k contributions and would like the comfort and confidence of guaranteed income — so you can focus on your goals knowing you won't outlive your money.

Learn more: What is a variable annuity, and how does it work? Pros: Receive income right away, simplicity of not needing to monitor investment, know exactly how much money you'll receive in payout. Cons: Payments can end upon the death of the annuitant; may not keep pace with inflation; trading liquidity for guaranteed income.