Annuity Product Types

In the following, we distinguish between several annuity types: Immediate vs. Deferred, Fixed vs. Variable vs. Buffer, and Income vs. Accumulation products.

An annuity is a reverse bet from Life Insurance. It is an investment you make to self-sponsor your own pension plan. Money grows tax-deferred. The income derived will also be tax-free if bought within a Roth IRA. We have grouped annuity products based on when the income is taken, how the investment is made, and the investment goal. Let us review these three product groups.

Immediate vs. Deferred Annuity
Immediate Annuity turns a lump sum into an income stream now, whereas Deferred Annuity allows the investment to grow for some time before being annuitized (the process that starts income by paying out a certain percentage of the account value every year, for example, 5% at age 65). Income may be taken as Lifetime, where income is guaranteed for as long as you live, or for a set period of years called Period Certain. For Joint Life annuities, income is paid until both parties pass away. However, the income amount is smaller because it is based on the younger person’s age, and the payout rate is typically lower by 50 basis points compared to that of a Single Life.

Fixed vs. Variable vs. Buffer Annuity
Investment in a Fixed Indexed Annuities (FIA) tracks a market index but is subject to caps or participation on the upside while protecting the principal on the downside. With a Variable product, unlike FIA, your investment is directly invested in the market. Hence, there is no cap on the upside or protection from downside. Buffer or Structured Annuities are a hybrid between FIA and Variable products. The caps are usually higher and there is some downside (typically 10-25%) protection.

Income vs. Accumulation Annuity
Income products focus on maximizing the annuitized income stream by providing a higher payout rate, by increasing payout rate for longer deferrals, adjusting for inflation, and calculating payout from a higher Income Value (IV) account. Accumulation products focus on maximizing investment growth by providing aggressive market indices and attractive crediting terms for index strategy options.

This product grouping allows us to better understand annuities, but it is not uncommon to find products in the market that possess characteristics across the various groups. Our blogs “How An Annuity Works” and “Annuity Benefits” provide a detailed view of a deferred FIA investment.

We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at

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