Terry Turner, Financial writer for Annuity.org
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    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Financial Wellness Foundation and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).

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  • Edited By
    Lamia Chowdhury
    Lamia Chowdhury

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Annuity.org. Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

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  • Financially Reviewed By
    Marguerita M. Cheng, CFP®, CRPC®, RICP®
    Marguerita M. Cheng, Certified Financial Planner

    Marguerita M. Cheng, CFP®, CRPC®, RICP®

    Expert Contributor

    Marguerita M. Cheng, CFP®, CRPC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a Certified Financial Planner Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

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  • Updated: December 22, 2022
  • 14 min read time
  • This page features 21 Cited Research Articles
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APA Turner, T. (2022, December 22). Types of Annuities. Annuity.org. Retrieved February 2, 2023, from https://www.annuity.org/annuities/types/

MLA Turner, Terry. "Types of Annuities." Annuity.org, 22 Dec 2022, https://www.annuity.org/annuities/types/.

Chicago Turner, Terry. "Types of Annuities." Annuity.org. Last modified December 22, 2022. https://www.annuity.org/annuities/types/.

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Key Takeaways
  • Each type of annuity has its own level of risk and payout options. Your personal goals and objectives will help determine the best annuity for you.
  • You choose between receiving annuity payments immediately or deferring them to a specific start date.
  • Annuity contracts can include various provisions for the annuity owner and their beneficiaries.

Main Types of Annuities

There are several different ways to categorize the different types of annuities.

For instance, annuities can be categorized into types by the way you receive your payout, how the annuity grows in value and how you pay your premium to buy an annuity.

These options may often be combined to let you select an annuity that best fits your plans.

Wendy Swanson, RICP®, CLTC®, NSSA® | 0:28 What are the different types of annuities?
What are the different types of annuities? - Featuring Wendy Swanson, RICP®, CLTC®, NSSA®
Wendy Swanson, Retirement Income Certified Professional™, explains the different types of annuities.

Types of Annuities by Payout Options — When and How Long You Receive Annuity Payments

Payout options define two types of annuities: immediate and deferred annuities. These describe the ways in which you will receive income from an annuity after paying your premium.

Types of Annuities Based on Payouts
Immediate annuity (income annuity)
With an immediate annuity, also known as an income annuity, you begin receiving payments within a year after purchasing it. An immediate annuity is typically funded by a retirement account, such as a 401(k), and is a good option for those ready to leave the workforce but still want to maintain a steady income.
Deferred annuity
With a deferred annuity, you receive payments that start in the future. Typically, this happens when you retire. In the meantime, your investment grows on a tax-deferred basis.

In addition to when you start receiving payments, you can choose how long you want to receive payments for.

Typically, annuity payouts are used to protect against longevity risk. Annuities can provide guaranteed lifetime income, so you don’t outlive your retirement savings. But you can also arrange for an annuity to payout over a fixed period of time.
How Long Annuities Are Paid by Type
Lifetime annuity
A lifetime annuity guarantees an income stream for the rest of your lifetime. In some cases, lifetime annuities allow for a beneficiary to receive payments after your death. With these annuities, the amount of the payment will be set based on your health and age, since the payments are likely to continue longer for younger, healthier people.
Fixed-period annuity
A fixed-period annuity, also known as a term-certain annuity, pays out over a specific period of time. This type of annuity spreads out payments over a fixed period — typically 20 or 30 years. With these annuities, the age and health of the annuity holder do not affect the amount of the payments.
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The longer the person is expected to live, the lower the individual payments are likely to be.

Types of Annuities by Growth — How You Want Your Annuity to Grow

Fixed, variable and fixed indexed are the main types of annuities based on growth. You will have to consider your level of risk aversion — how you weigh preserving your investment against the potential for higher returns — when deciding on this type of annuity.

Types of Annuities Based on Growth Potential
Fixed annuity
A fixed annuity offers the least risk and the most predictability. Fixed annuities come with a guaranteed, set interest rate that doesn’t vary beyond the terms of the contract. While other investments might soar or dive, the fixed annuity is steady. Sometimes, however, the interest rate will reset after a predetermined number of years.
Multi-year guaranteed annuity (MYGA)
A multi-year guaranteed annuity, or MYGA, is a type of fixed annuity. It offers a fixed interest rate for a specified period of time — typically three to 10 years. A MYGA is generally best suited for people nearing retirement looking for a way to defer taxes while guaranteeing a return on their investment.
Variable annuity
A variable annuity provides you with periodic payments based on performance of sub accounts that fund the annuity’s growth. So, your payments may fluctuate. Sub accounts work in a way similar to mutual funds. The amount of your payments may be higher if the sub accounts perform well, or they’ll be smaller if the sub accounts lose value.
Fixed-index annuity
The payout you received from fixed-index annuities is tied to a market index — such as the S&P 500 or Nasdaq. Fixed-index annuities also protect you against losing any of your principal if the index declines. This makes a fixed-index annuity safer than investing directly into an index fund. To pay for this protection, fixed-index annuities set limits on both your gains and your losses.

Interest-rate risk is a factor in determining the calculation of your payments for annuity. Low risk yields predictable payment amounts. Higher risk could boost your expectations.

Scale of risk by annuity type
Expand
Type Interest Risk Reward
Fixed Preset/guaranteed Low Predictable
Variable Tied to investment portfolio Higher Potentially higher or lower
Fixed Indexed Preset minimum. Can change according to index like stock market Medium Won’t sink below set level.

Types of Annuities by Premium — How You Want to Purchase It

There are a couple of options for purchasing a deferred annuity — with a single lump-sum premium, or a series of payments over time.

Annuity Types Based on How You Purchase Them
Flexible premium annuity
A flexible premium annuity is one that you purchase through a series of premium payments. They can only be deferred annuities — allowing you to make payments over a long period of time with the promise of a payout in the future. Some may allow you flexibility to contribute without a schedule or minimum number of routine payments.
Single premium immediate annuity (SPIA)
A SPIA allows you to make a single lump-sum payment and begin collecting a steady income stream in less than 12 months. It’s also called an immediate annuity or income annuity. They account for only about 10% of annuities sold each year and are preferred by people close to retirement age.
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Other Annuity Choices

There are a wide variety of annuities beyond the most common types. These can be tailored to your specific needs and long-term financial goals.

There are options that allow you to take advantage of tax breaks for qualified retirement accounts — such as traditional IRAs and 401(k) plans. You can also set up annuities to continue payments to beneficiaries after you die.

Other options include:
  • Life-only annuities — also called single life annuities or straight life annuities — pay a lifetime income to just the annuity’s owner — and do not pass on income to your spouse or other beneficiary.
  • Long-term care annuities are a tax-deferred annuity with a rider that sets up payments for long-term care if you need it in the future.
  • Life annuities with period certain annuities pay a lifetime income for a set period of years. If you die before the period is up, the payments continue to your spouse or other beneficiary for the set period of time.
  • Joint and survivor annuities make monthly payments as long as one spouse is still alive.
  • Group annuity contracts are offered through employers as part of a retirement benefits package.

Finding the Right Type of Annuity for You

There are pros and cons to each type of annuity. You should consider how the features of different types of annuities work best for your current financial situation and how each can help you reach your long-term financial goals.

You should also compare several different annuity options, ask yourself how each meets your needs and talk to a financial professional about how each annuity you’re considering will help you achieve your goals.

Checklist for Choosing the Best Annuity for You
Understand how you’ll use the annuity.
Ask yourself how you plan to use the annuity — for a guaranteed retirement income, building toward a retirement portfolio or as an inheritance for your spouse or children. Discuss these goals with a financial professional. This can make a big difference in the type of annuity best suited for you.
Consider whether you’ll need the money right away.
If you will need the money in the next five years, you could have to pay costly surrender fees. These fees vary from insurer to insurer, so it’s important to understand how much of a penalty you may have to pay for an early withdrawal.
Ask about waivers if you may need the money right away.
You may want to consider a waiver that lets you take out money right away in the event of an emergency, such as a serious medical event or the need for long-term care. Some annuities can include a waiver dropping early withdrawal — or surrender — fees for these emergencies.
Know all the fees you’ll have to pay.
Insurers may charge annual fees in addition to upfront fees when you first purchase your annuity. You can typically find information about fees in the prospectus. Look at the overall cost of fees in the long term and consider how much they eat into your benefits over the lifetime of the annuity.
Get quotes from at least three insurers.
Payout options vary from insurer to insurer. Compare annuities to get the best bargain. Consider buying multiple annuities from different companies — based on what your state regulations allow.
Make sure the company is solid.
Make sure you’re buying an annuity from a company that’s financially sound. If a company goes under, it could take years to get your money back. Check the company’s ratings with multiple financial rating agencies such as Standard & Poor’s, Moody’s, A.M. Best and Fitch. This will give you an idea how strong a company is.
Know the minimum guaranteed return.
The minimum guaranteed return is the very minimum amount of money you’ll receive each year from your annuity. This can be straightforward with a fixed annuity, but some variable annuities also guarantee a rock-bottom amount no matter what.
Understand the death benefit options.
A death benefit is money provided to your spouse or other heirs if you die. These options can vary. Ask about the options you have for how you want a death benefit to work with your annuity before you purchase it.
Wendy Swanson, RICP®, CLTC®, NSSA® | 1:10 How do I know what annuity is best for me?
How do I know what annuity is best for me? - Featuring Wendy Swanson, RICP®, CLTC®, NSSA®
Wendy Swanson, Retirement Income Certified Professional™, explains how to determine what annuity makes the most sense for you.

Questions About Types of Annuities

How are the different types of annuities determined?
There are several ways to categorize annuities by type. Annuity.org categorizes the types of annuities by payout, growth and premium options. These tend to be the most common aspects of annuities that people consider important when buying an annuity.
What are the main types of annuities?
Payout types include immediate and deferred annuities which determine how you will receive your money from an annuity.

  • A single premium immediate annuity (SPIA) starts paying a steady income stream within 12 months of you paying a lump sum premium.
  • Deferred annuities pay out months or years into the future, allowing you to make premium payments over time.

Growth annuities are based on how the money you invest into an annuity grows over time.

  • Fixed annuities guarantee a fixed interest rate on your contributions over a period of time.
  • Variable annuities provide a return based on the performance of its sub accounts — the funds your premium payments are invested in.
  • Fixed-indexed annuities base their payments on the performance of a market index — such as the S&P 500 or Dow Jones Industrial Average.

Annuity types can also be based on how you want to pay your premium.

  • A flexible premium annuity allows you to make premium payments over time, but the size and frequency of contributions are flexible.
  • A single premium immediate annuity (SPIA) requires a single premium payment and begins paying out immediately.
What is the best type of annuity product?
The best type of annuity varies from person to person. The type of annuity that is best suited for you depends on your current financial situation and long-term financial goals for an annuity. It is important to compare annuities to find the one that best fits your needs and goals. You should consider how you wish to pay for an annuity, the kind of growth you want an annuity to accomplish and the type of payout that suits your financial goals.
Please seek the advice of a qualified professional before making financial decisions.
Last Modified: December 22, 2022
Written By
Terry Turner, Financial writer for Annuity.org
Terry Turner Senior Financial Writer and Financial Wellness Facilitator
  • Member of the National Wellness Institute
  • Emmy® Award winner
  • Certified Financial Wellness Facilitator
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Edited By
Lamia Chowdhury
Lamia Chowdhury Financial Editor
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Financially Reviewed By
Marguerita M. Cheng, Certified Financial Planner
Marguerita M. Cheng, CFP®, CRPC®, RICP® Expert Contributor
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21 Cited Research Articles

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