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Main story: Annuities and your portfolio Story
Types of annuity and payout plans
Types of annuities

Fixed: A guaranteed initial interest rate for a specific period -- usually 1, 3 or 5 years. After that a new interest rate is determined. The agent should be able to show you a rate history so you can see if there's a big difference between the initial fixed rate and the second fixed rate. These are a lot like CDs in that your principal and interest rate are guaranteed, but annuities don't have the backing of the Federal Deposit Insurance Corp.

Variable: Principal and rate of return aren't guaranteed but you stand a chance of doing better than the going interest rate because, depending on the insurance company, you may have the option of investing in stocks, bonds, mutual funds and money markets. You also stand a chance of losing your shirt.

Purchase options

Single Payment: An upfront lump-sum contribution.

Flexible Premium : A series of payments over a specified number of years.

Payout options

Immediate: If you make an upfront lump-sum contribution, payouts can begin immediately. This may be a good option for someone who is about to retire. The payouts are determined by the amount of your contribution, your age and the prevailing interest rate. If you buy a variable annuity, the payouts you receive will rise and fall with the performance of your investments.

Deferred: Payouts begin at a specific future date, usually when retirement begins.

Annuity income options

Straight Life Option -- Life with Period Certain: Income is guaranteed for your life. If you die before receiving a specific number of payments, the money goes to your beneficiary.

Joint and Survivor: You and your beneficiary receive income for the rest of your lives. Depending on the contract, the survivor's payments may be 100 percent of the original payments or a lesser amount.


Related information:
More savings news
Search the latest savings rates
The basics: Savings
Definitions: Banking terms

-- Posted: May 1, 2000


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