Annuities

There are two basic kinds of annuities -- deferred (you put money in as a lump sum or on a regular basis and let it sit there), and immediate (you start receiving regular payments for the rest of your life or beyond). A further -- and criticalm -- distinction is between fixed and variable annuities. Fixed deferred annuities guarantee you a basic interest rate during the accumulation phase, although they often claim interest rates that are a few points above that guaranteed rate. For example, a frequent marketing technique for fixed deferred annuities is to "guarantee" (and advertise) a relatively high interest rate. In the fine print you discover that the guaranteed rate is only good for six months or a year.

Fixed immediate annuities offer a guaranteed monthly income during the payout phase. Fixed annuities usually guarantee a death benefit at least equal to the premiums paid-in. At death, an annuity's payment schedule varies according to the payment option you choose -- ranging from nothing to a reduced payment to your spouse for as long as he or she lives.