During your search for annuities, you will come across a variety of annuity tables online. How can you make heads or tails of the numerous tables and types of annuities?
Before you begin to compare annuity products, take some time to understand the basic annuity elements of the six most common types of annuities. Once you understand these basics, you can compare apples to apples, narrowing down your options to those which best meet your financial needs and objectives.
As you review these six annuity types below, keep in mind that each type is typically offered as either a variable or fixed option. When comparing annuity tables, be sure to compare ‘like’ products.
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1. Fixed Immediate Annuity Tables
Fixed immediate annuities are designed to provide you with a steady stream of income, regardless of what happens to interest rates or the stock market. You can choose to receive income payments for the duration of your lifetime and that of your spouse (or designated beneficiary), or any combination of these options, for a specified period of time.
The monthly quote amounts shown in a typical immediate annuity table are based on the premium paid, the ages of the annuitants, current interest rates and the income period selected. Fixed immediate annuity tables will not usually show the internal rates used by the insurance company to calculate payments, but rather the dollar amount guaranteed over the specified time period.
2. Deferred Fixed Annuity Tables
A deferred fixed annuity offers similar features to a certificate of deposit issued by a bank, but without FDIC insurance protection. Deferred fixed annuities are attractive to investors seeking investment growth with guaranteed annual interest rates.
The annuity tables for deferred annuities typically illustrate the interest rate you will receive over a multi-year period (similar to the different maturity durations available in a bank certificate of deposit). Deferred annuity tables show rates ranging from three to ten years; the interest rate quoted remains fixed over the entire time period of the annuity.
Traditional deferred fixed annuities offer a guaranteed interest rate for the 1st year and adjusted rates for the subsequent years. When you review deferred annuity tables, the interest rates shown are generally current market rates.
If you need to access funds prior to your deferred annuity’s interest rate guarantee period, you will likely be able to up to a pre-defined withdrawal amount as set by the insurance company (typically between 3% and 10% of the account value). Exceptions may be made if the annuity owner is disabled. If you should die, in most cases, your beneficiaries will receive the remaining balance.
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When you request an illustration for a deferred fixed annuity, the table will generally display the amount your premium has grown to at the end of each contract year. You may also see the interest rate quoted for the annuity and any applicable surrender charges.
3. Longevity Annuity Tables
Longevity annuities, otherwise called deferred income annuities, offer features from immediate fixed annuities and deferred fixed annuities. Longevity annuities offer investment growth and a defined income period. The income is often deferred for a period ranging from three to thirty years from the initial premium deposit.
One of the primary considerations of a longevity annuity is what happens to the premium and/or income should the annuity owner die before the income begins or is fully received. Some annuity contracts offer a death benefit, while others do not. Be sure to ask for clarification prior to depositing your initial premium.
Longevity annuity tables will display the start date of your future income stream and the amount of income you can expect to receive based upon the amount of premium initially deposited.
4. Secondary Market Annuity Tables
In some cases, the owner of an existing immediate annuity may want to receive the premium value of the annuity before the future payments are made. In this instance, he could turn to the secondary market for annuities which offers a platform for others to purchase existing annuities.
Secondary market annuities can be similar to immediate annuities, offering an income stream that begins in one month. Or, they can work in similar fashion to longevity annuities, offering a delayed income start time.
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The information contained in a secondary market annuity table will contain the name of the underlying insurance company, a rate of return, the purchase price, and the date income payments will begin.
5. Fixed Index Annuity Tables
Fixed index annuities offer interest rates that correlate to a particular underlying stock index (i.e. S&P 500). These interest rates are subject to market fluctuation and when quoted are often accompanied by a rate ceiling and rate floor.
The rate floor is the lowest rate of return you will receive on your initial investment, regardless of market conditions. And the rate ceiling, also referred to as a rate cap, is the largest rate of return you can expect to receive if the benchmark index experiences a sharp increase. Cap rates are often re-set by the insurance company each year.
Fixed index annuity tables often display several hypothetical situations to review. For example, you may be presented with an illustration of how much your account would have grown over the past 10 years based on an initial premium amount.
6. Variable Annuity Tables
When you purchase a variable annuity, your premium becomes subject to market fluctuations. You can allocate your premium in a variety of subaccounts which are similar to mutual funds, but with the advantage of tax-deferral.
Each year, your account is assessed maintenance fees based upon the sub-accounts selected in addition to the annuity’s annual mortality rate charges. For example, if your variable annuity earned 7% and your annual fees equaled 2%, the growth applied to your annuity account for the same year would be 5%.
Illustrations containing variable annuity tables will contain hypothetical performance examples based upon chosen market periods. It is important to understand that your account’s balance will fluctuate moving forward based upon actual market conditions and that the hypothetical illustration provided to you for review is not guaranteed.