a. Single premium deferred annuity (SPDA) - A lump-sum immediate premium with a deferred payout period.
b. Flexible premium deferred annuity (FPDA) - Allows periodic, non- fixed contributions with a deferred payout period.
c. Single premium immediate annuity (SPIA) - Annuity begins immediately following premium paid.
d. Variable annuity - The return will vary depending on the performance of the underlying investments. The benefit could result from a single premium or flexible premium and may be an immediate or deferred annuity.
Annuities may appeal to anyone who wants a guarantee on their investment contributions without bearing the full investment risk of other investment options or growing funds on a tax-deferred basis. Unfortunately, the majority of annuity owners use them as a way to accumulate earnings then proceed to take a lump sum instead of taking advantage of the guaranteed-life-income feature.
- Annuities can play a vital role in any situation where income is needed for only a few years or for a lifetime.
- It is important to realize that annuities are not life insurance contracts. The principal function of a life insurance contract is to create an estate, an annuity's principal function is to liquidate an estate.
Which are disadvantages of a straight life immediate fixed annuity?
I. Annuitant receives a fixed payment with no inflation hedge.
II. Annuitant cannot change the remaining value and ask for principal back.
III. Annuitant may die before the return of principal is realized, leaving nothing for the beneficiaries.
IV. Annuitant receives a guaranteed stream of income no matter how long he/she lives.
A. II & IV
B. I, II, & IV
C. VI only
D. I, II, & III
E. I, II, III, & IV
The annuitant receiving guaranteed income for life is an advantage. All others are disadvantages.
Taxation of Annuities
RetirementLearn if buying an annuity makes sense in a low interest rate environment. Also discover the different types of annuities and how interest rates affect them.
RetirementLearn more about why annuities are generally purchased and the way that they can positively and negatively affect an individual preparing for retirement.
Financial AdvisorAnnuities suffer from a few perception problems. This primer that covers the good, the bad and the ugly of annuities.
RetirementWe explain how to use annuities for guaranteed income in retirement.
RetirementThese popular investments can provide a steady stream of income during your retirement years. Here are the details.
Financial AdvisorConceptually speaking, annuities can be thought of as a reverse form of life insurance.
RetirementIt pays to get the best advice if you are thinking of putting your money into one of these complicated investments.
RetirementBy laddering annuities, you can be sure you'll have income no matter what the market does.