Understanding Annuities | What’s Available to You

As you get closer to retirement, it becomes increasingly easier to reach your maximum allowable contributions to your 401k or IRA, leaving you to add the same amount each month with no chance of additional income when you finally reach retirement. A simple and effective option available is to put extra money into an annuity.

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Do You Need an Annuity?

For individuals who are approaching retirement, the per year contribution limits placed on a 401k or IRA has remained unchanged for the last few years at $18,000. For many, this places unnecessary restrictions on plans for retirement or will not sufficiently supplement annual spending during retirement. An annuity can alleviate this issue.

With an annuity you have the opportunity—with fewer limitations—to add to your retirement savings through your insurance provider. Whether you add to a deferred or immediate annuity, you can feel more secure knowing that the money you put into your annuity is growing and can be paid back in various increments depending on your needs.

Deferred & Immediate Annuities | Which One Do You Need?

Currently, insurance companies offer customers with two types of annuities: immediate and deferred. Depending on your retirement plans or personal needs, here’s what you can expect with your choices.

Deferred Annuities

The option best suited for individuals who are still a few years away from retirement are deferred annuities. Within a deferred annuity, two options are available:


Deferred Variable Annuity

Similar to a 401k investment portfolio, deferred variable annuities have the potential for market growth and loss. These are great options for individuals with longer retirement timelines as dealing with market fluctuations won’t be as harmful.


Deferred Fixed Annuity

For individuals who are more conservative investors, a deferred fixed annuity may be your best option as they can better protect assets from fluctuating markets. Additionally, they offer a guaranteed rate of return for more years.

With both variable and fixed annuities, you do need to keep in mind that, if you choose to withdraw funds prior to the age of 59 1/2, the withdrawal may be subject to an IRS penalty of 10%, similar to 401k and IRA rules.

Immediate Annuities

Designed as an income-based payment, immediate annuities begin paying out on a recurring basis following their purchase and the first payment into the annuity. Like their deferred counterparts, immediate annuities come in two forms:


Immediate Variable Annuity

Depending on the performance of you annuity’s investments, the income payment back to you will vary. While the payments of income are guaranteed for life, the amount of each payment is not.


Immediate Fixed Annuity

This is a great option for individuals who would rather not depend on market success for their immediate income payment. With a immediate fixed annuity, the amount of each payment will be guaranteed and predictable for life, or for a certain period of time. Depending on the insurance company you use, a cost-of-living increase may be added as well.

The drawback found in immediate annuities stems from your ability to access the assets that were used to purchase your income annuity.

How to Choose an Annuity

Finding the best option can feel overwhelming the closer you get to retirement. With numerous annuity options to choose from, selecting what will fit best with your life plans will differ. Insurance Designers of America can put you in contact with some of the best insurance specialists in the nation to help you find the annuity that’s best for you.