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Annuities can be confusing for those who do not have a strong understanding of financial jargon. An annuity is essentially a contracted financial product that is based upon investing in growth funds that will then be paid back for retirement. There are different types of annuities that are dependent on your own financial situation and goals for future retirement.

 

Single Premium Deferred Annuity (SPDA)

A Single Premium Deferred Annuity is an annuity that is paid for upfront in one large lump sum. Rather than a contract that asks for money on a regular payment basis, an SPDA is a one-and-done type of deal. An SPDA is fitting for investors who rely on a steady income and have a lump-sum balance to invest with. Some benefits with SPDAs are that they can either be fixed or variable. As well, distributions are taxed only when you withdraw from them.

 

Immediate Annuity

Immediate Annuities are pretty simple to understand due to the fact that they are almost identical to a life insurance plan. This type of annuity does not wait to be paid out until your death. Insurers pay out in regular installments during your lifetime, rather than one large amount after death. The amounts and period in which you are paid are flexible in terms of your desired situation.  

 

Variable Annuity

A variable annuity is the opposite of a fixed annuity. This annuity allows you to select an investment and pays you an amount of income that is dependent on the performance of that investment. There is not a fixed amount that you will receive regularly.

 

Index Annuity

This type of financial contract is essentially a combination of a fixed and variable annuity. It gives you a guaranteed return that is usually low risk. It also allows you to have better gains when the stock market is strong. This annuity is usually pitched as a retirement choice that has the “best of both worlds.”

 

Tax-Sheltered Annuity (TSA)

A Tax-Sheltered Annuity allows an employee to put in a portion of their income into a plan directed towards retirement. The contributions made into the plan are taken out of the employee’s income directly. This allows input into the plan to be tax exempt until an employee decides to start taking money out of the plan. A common TSA plan in the U.S. is the 403(b) plan. TSAs are also comparable to 401(k) plans.

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