Introduction to Deferred, Fixed, and Variable Annuities

Annuities are a time-honored investment designed to provide a guaranteed income for retirement. Annuities are the only investment vehicle that is allowed to claim that it can provide a guaranteed income that the annuitant cannot outlive. This is because an annuity, like life insurance, is operated by an insurance company and follows the same actuarial principles.

Annuities may pay a fixed amount of income periodically for life or a variable amount depending upon the type of contract. Fixed annuities are the oldest form of annuity and easiest to understand. If you think that you may need a fixed income for life (or a certain period of time), then you should consider a fixed annuity as part of your financial planning.

Although annuities have been around a long time, the traditional fixed annuity was often plagued by inflation and offered low returns. To attract more investors to annuities, insurance companies introduced variable annuities as a more competitive investment option.

A third group, deferred annuities, are a way to build capital to provide future income for you and your heirs. Annuities are not a new financial concept. They have been around for hundreds of years as a way to make guaranteed payments to someone who cannot outlive the payments. A deferred annuity provides a convenient way to accumulate the principal to be used in an annuity.