Retirement Income: 5 Types of Annuities that Not Many People Know About

Get ready for an exciting journey through the annuity world! While you might know about well-known options like fixed and variable annuities, a wealth of lesser-known annuities is just waiting to be uncovered. Are you prepared to dive into five unique annuity choices that could be crucial for your financial future?

Fixed index annuities are a unique financial product that blends the characteristics of fixed and variable annuities. They provide a minimum guaranteed interest rate and an interest rate linked to a broad stock market index, such as the S&P 500 or the Dow Jones Industrial Average. This hybrid design aims to shield you from stock market losses while enabling you to benefit from market gains.

Fixed index annuities come with a feature known as a ‘guaranteed minimum return.’ This means that when you invest in a fixed index annuity, you are assured of receiving at least a specific amount.

For instance, let’s say the stock market experiences a 10% decline next year, and your guaranteed minimum rate is set at 6%. In such a scenario, you will still earn that guaranteed 6%.

If the stock index consistently performs well, you have the potential to earn a higher return compared to traditional fixed annuities.

Conversely, if the stock index doesn’t perform as expected, your payments will not drop below a predetermined level.

Longevity annuities can be valuable if you are concerned about running out of money in your later years.

Longevity annuities (Deferred Income Annuities) are contracts between an individual and an insurance company. The insured party deposits a premium payment into the contract today and, in exchange, receives a guaranteed income stream for life beginning at a pre-determined future date.

In a longevity annuity, the income payments begin at a future date, typically well into retirement, such as age 80 or 85. This delayed start allows for higher periodic payments because of the longer deferral period. They can provide a valuable solution if you are concerned about running out of money in your later years.

Immediate annuities can generate an immediate cash-flow stream from a pot of money intended to last a lifetime or set number of years.

A single premium immediate annuity (SPIA) is a simple and consumer-friendly product that turns a lump-sum premium into a guaranteed stream of income payments that begins within a year of purchase. Immediate annuity rates depend on your upfront payment amount, contract terms, age, and sex.

Many consider immediate annuities the simplest and most consumer-friendly category of annuity. According to the Insurance Information Institute, 2022 saw approximately $9.2 billion in sales of fixed immediate annuities. This figure accounts for only a small portion of overall fixed annuity sales, which reached nearly $210 billion in total sales for the same year.

Guaranteed income for life, starting further down the road.

A deferred income annuity is an insurance contract that generates income for retirement at a future date. In exchange for a one-time deposit or multiple deposits over your chosen waiting period, an annuity company provides steady income payments to you for life.

Typically, payments can start two years after the policy issue date. The longer you defer your payouts, the more guaranteed income you will generate when you do start taking payouts.  With your annuity’s consistent income, you may not need to dip into your investments.

Charities and donors can both benefit from using a form of planned giving called a charitable gift annuity.

Charitable gift annuities are an agreement where donors give to a charity and, in return, receive regular payments for life.

Charities and donors can both benefit from using a form of planned giving called a charitable gift annuity. Charitable gift annuities are similar to other annuities in that a lump sum is exchanged in return for a series of payments. 

However, instead of involving an insurance company, there is a contractual agreement between the donor and the nonprofit that manages the charitable gift annuity. The funds are invested, and while the donor lives, they receive payments from the charitable organization where they established the charitable gift annuity. Upon their death, their chosen charity receives the remaining annuity balance.

There are potential advantages to charitable gift annuities over a more traditional donation.

• Donors support a cause while getting financial benefits like tax credits and tax-free payments.
  
• Charities build long-term donor relationships and keep the remaining annuity balance upon the donor’s passing.