There are two basic types of immediate annuity income options — fixed and variable.
Immediate Fixed Annuity
The income received from an immediate fixed annuity is set and guaranteed by the insurance company. The insurance company bases the income calculation on several factors including: an individual's age, sex, current interest rates and the income plan elected. This type of annuity may appeal to you if you have a more conservative approach to your retirement income and want a known amount coming to you with each payment.
Features of an immediate fixed annuity:
- Fixed and guaranteed income
- Income may begin immediately
- May be paid over a specific period of time or lifetime
Immediate Variable Annuity
The income received from an immediate variable annuity is tied to the performance underlying investment funds that you choose. Those who select this type of annuity are interested in the potential that the underlying funds will perform well and increase the amount of income they receive. Of course the performance of the underlying funds will fluctuate monthly and the income may be higher or lower than the fixed rate. For this reason, some people purchase an immediate fixed annuity for the fixed portion of their income, while taking advantage of the potential for growth of income through an immediate variable annuity.
Features of an immediate variable annuity:
- Income is based on performance of underlying investment funds
- Professional fund management and asset diversification
- Income may begin immediately
- May be paid over a specific period of time or lifetime
- Income payments can fluctuate
- Tax-free transfers between investment options
- Potential inflation hedge