When it comes to pursuing retirement goals, people’s thoughts often turn to maintaining their lifestyle in their post-work years and being prepared for unexpected expenses. For many, a key aspect of these goals is knowing their retirement income plan features a steady stream of protected lifetime income.
An annuity is a financial product designed specifically for retirement savings that can provide a regular flow of income for a period of time, usually during retirement. But one thing people quickly discover is that there are many types of annuities. Why are there so many kinds of annuities? There are different types of annuities because they are designed to address different needs and objectives. To better understand that, we must start at the highest level where there are really only two types of annuities: fixed and variable.
A fixed annuity is a contract between you and an insurance company. It can provide a predictable and reliable rate of return because the owner is protected with a guaranteed minimum interest rate.
A variable annuity is also a contract between you and an insurance company. Unlike a fixed annuity, the return the variable annuity produces will be based on the performance of its underlying investment accounts. It has the opportunity for growth over the long term, as well as the potential to lose value in a down market.