What are the different types of annuities?
There are so many different annuities it can feel overwhelming. But while there are many, many different products, there are actually only a handful of different categories of annuities. Breaking down the annuity categories and their purposes can help you identify which type of annuity will help you achieve your retirement goals.
First we’re going to break annuities down into very general categories: income annuities and growth annuities. Below we list the types of annuities in each category, which we will go through in more detail below.
Income and Growth Annuities
Income Annuities
Growth Based Annuities
Income Annuities
These annuities are focused around providing you with guaranteed income. These annuities tend to be very straightforward: you pay the insurance company a premium payment and in exchange the insurer promises to make regular payments to you, often for life.
While there are other types of annuities that can provide income streams, they tend to be more complicated and don’t always guarantee a specific income rate.
While income annuities tend to have very competitive income rates, you do sacrifice some flexibility with your contract. Most income annuities are irreversible purchases, meaning that you are locked into the contract after your free look period ends.
Let’s look at the different types of income annuities.
Immediate Annuities
Immediate annuities are very straightforward. You pay the insurer your premium payment, and they provide you with a guaranteed income stream.
The amount you receive each month, often called your payout rate, is determined based on a variety of factors such as your age, gender, premium amount and more. We have an article dedicated to understanding what impacts payout rates.
When you run an annuity quote with our blue quote calculator on this page, you will see guaranteed rates from insurers. This is the actual income you would receive; there is no guesswork.
An immediate annuity starts making payments to you, called your income start date, within one year of purchasing the annuity. You select your income start date (starting in as little as one month) when you run quotes and apply for your annuity.
Deferred Income Annuities
Deferred income annuities are very similar to immediate annuities. They also provide guaranteed, regular income. Like immediate annuities, they can make payments to you for the rest of your life, depending on the payout option you choose.
The main difference between deferred income annuities and immediate annuities is when you begin receiving income. With a deferred income annuity, your income starts more than a year from when you purchase the annuity.
In exchange for this delay in payments, deferred income annuities pay you more on a monthly basis than immediate annuities. The reasons for this are twofold: the insurer has your money for longer before making payments to you, and you are older when payments start being made to you (applicable for life annuities).
Secondary Market Annuities
The last type of income annuities, secondary market annuities, are more complicated than immediate or deferred income annuities.
With these annuities, you are purchasing someone else's guaranteed income stream. Effectively, another person received a guaranteed income stream, often through a structured settlement or lottery, and sold those future payments at a reduced rate.
You can buy the rights to these payments. Because you are buying someone else's income stream, there are important differences between secondary market annuities and other income annuities. The major differences are that:
- You often get a higher payout rate than if you purchased an annuity for yourself
- You are not the owner of a secondary market annuity, you are the payee
- You are not afforded the same protections as owners of annuities are
There is a real trade-off with secondary market annuities. You can get a higher income stream than you might get if you purchased one yourself, but you also don’t receive all of the protections and rights that owners of annuities get.
Overview: Income Annuities
| Immediate Annuity | Deferred Income Annuity | Secondary Market Annuity | ||
|---|---|---|---|---|
| Primary Goal | Primary Goal | Immediate guaranteed income | Future guaranteed income | Discounted guaranteed income |
| Income Begins | Income Begins | Immediately | At a future date | Varies |
| Flexibility | Flexibility | Very Low | Low | None |
| Fees | Fees | None | None | Payment Processing Fees |
Growth Based Annuities
For the purposes of understanding annuities, we consider growth based annuities those that have an account value that grows over time. While many of these annuities can also provide income, if you choose to take that route, they aren’t specifically designed for this.
While these annuities tend to be a bit more complicated, some of them are actually quite simple and great products for growing your retirement funds. We’ll go over them from simplest to most complicated below.
Multi-Year Guarantee Annuities
Today's Best
Multi Year Annuities
Deferred Annuity table
| Company / Product | Rate | Yrs. |
|---|---|---|
| Revol OneDirectGrowth 10 | 6.25% | 10 |
| Liberty Bankers LifeHeritage Elite 9 | 5.40% | 9 |
| Oxford LifeMulti-Select 8 | 5.35% | 8 |
| Revol OneDirectGrowth 7 | 6.15% | 7 |
| Oxford LifeMulti-Select 6 | 5.85% | 6 |
| AxonicAxonic Waypoint 5 | 5.80% | 5 |
| Oxford LifeMulti-Select 4 | 5.45% | 4 |
| AxonicAxonic Waypoint 3 | 5.50% | 3 |
| AxonicAxonic Waypoint 2 | 5.00% | 2 |
This is one of our most popular types of annuities for good reason. Multi-year guarantee annuities are quite straightforward: you pay the insurance company a premium and in exchange the insurer promises to grow your money at a fixed rate for that period. People often compare them to CDs. Though they operate similarly, there are differences between how multi-year guarantee annuities and CDs work.
In addition to growing your premium, multi-year guarantee annuities also offer tax deferral, meaning your money grows without being taxed. Many also have options to withdraw money during the term of the annuity.
While these annuities are generally more flexible, there are still surrender penalties and market value adjustments if you decide to end your annuity early.
If you are interested, read our guide to multi-year guarantee annuities.
Fixed Index Annuities
Sometimes also called equity index annuities, fixed index annuities are also built around growing your money. Fixed index annuities grow your money by tracking a market index. The insurance company protects you from losing money, but also caps your earnings.
Fixed index annuities also grow your money tax deferred and often carry surrender charges and market value adjustments should you cancel your contract early.
Many fixed index annuities offer income riders, which allow you to turn your annuity into a guaranteed income stream. Many times, you have to pay an annual fee to include an income rider in your contract, reducing your overall earnings.
Fixed index annuities tend to be more complicated than other fixed annuities. If you are interested in learning more, check out our guide to fixed index annuities as well as our article on understanding fixed index annuity rates.
Variable Annuities
We’ve saved the most complicated for last. Variable annuities are also growth based annuities with some options for turning them into guaranteed income streams.
A major difference with variable annuities, however, is that you are actually investing in the market. The insurance company does not protect you from market losses. If your investment allocations decrease in value, your annuity will also decrease in value.
While variable annuities also grow tax deferred and have surrender charges and market value adjustments, they also have complicated and often high fee structures. You may be exposed to management fees, mortality expense fees, allocation fees as well as fees or loads to your underlying allocations.
These are some of the reasons that we don’t sell variable annuities.
Overview: Growth Annuities
| Multi-Year Guarantee Annuity | Fixed Index Annuity | Variable Annuity | ||
|---|---|---|---|---|
| Primary Goal | Primary Goal | Fixed guaranteed growth | Market based growth with protection | Market based growth with risk |
| Income Options | Income Options | Discretionary withdrawals | Income rider benefits | Income rider benefits |
| Risk Profile | Risk Profile | Low | Low/Moderate | High |
| Fees | Fees | None/Low | Low | Moderate/High |
We wanted to establish a bit of extra income. There was a good recommendation about ImmediateAnnuities.com on CNN. We also liked that we could see excellent reviews about them on Google. They were very thorough from our first inquiry to when we decided to buy our annuity from Mass Mutual. They always answered our questions promptly and followed up with the insurance company, too. We have been receiving our monthly payments since last November and couldn’t be happier. What more can we say?
Questions about annuities
If you are having a hard time navigating the world of annuities, give us a call at (866) 866-1999. Our U.S.-based annuity experts are happy to help you with your annuity questions. We promise to give you honest answers without any sales pressure.
You can also check out our Annuity Shopper Buyer’s Guide, which is a great resource for understanding annuities. It’s meant to be easy to read, while also being comprehensive.
Lastly, you can run quotes on our website or contact us with questions or to request product brochures. We’re here to help you however we can.
What's the best type of annuity for immediate income?
Generally, an immediate annuity is the type that is best suited to providing guaranteed immediate income. In exchange for your money, the insurer promises to make regular fixed payments to you, often for life. The downside is that you lose access to your premium payment. To retain liquidity, you might also consider a multi-year guarantee annuity that allows for systematic interest withdrawals.
Which annuities have low or no fees?
Immediate annuities and deferred income annuities are almost always no fee products. Many multi-year guarantee annuities also have no fees, though some may have optional riders available for purchase. Fixed index annuities typically have a discretionary income rider fee, while variable annuities are notorious for having high and opaque fee structures.
Is a fixed index annuity the right annuity to get guaranteed income for life?
While it could be, it really depends on your overall goals for this retirement money. If you are looking for guaranteed lifetime income, an immediate annuity or deferred income annuity is often the better choice. However, if you want flexibility with your money, a fixed index or multi-year guarantee annuity can be good options to combine asset growth with the option for guaranteed income.
What is the best type of annuity?
The best annuity really depends on your financial goals. Immediate annuities are often suggested by financial professionals for securing guaranteed lifetime income. If want to grow your money, many people like the guaranteed competitive rates that multi-year guarantee annuities offer. While there are other types, these two are the simplest annuities that are generally well regarded.
Are all annuities bad?
Not all annuities are bad! In fact, some are recommended by financial professionals for their ability to provide guaranteed lifetime income, for which there is no other widely available option (outside of pensions, which you cannot buy). Variable annuities get a bad rap for being expensive, but they are only one out of at least six main types of annuity.
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