Understanding Different Types of Annuities

April 7, 2023

 I know how confusing it can be to differentiate between various annuity types, so I’ve created this newsletter to help you understand the differences between Fixed Indexed Annuities, Fixed Indexed Annuities with Income Riders, SPIAs, MYGAs, and Variable Annuities.

Fixed Indexed Annuities (FIAs) vs. Fixed Indexed Annuities with Income Riders

Fixed Indexed Annuities

A Fixed Indexed Annuity (FIA) is an insurance product that provides a guaranteed minimum interest rate,  or the potential for additional interest based on the performance of an external market index. Your principal is protected from market downturns, and you can participate in the growth of the market without the risk of losing your original investment.

Fixed Indexed Annuities with Income Riders

A Fixed Indexed Annuity with an Income Rider is similar to a regular FIA, but it also includes a guaranteed lifetime income benefit. This means that, in addition to potential interest growth, you’ll receive a guaranteed income stream for life for an additional expense – normally 0.95%-1.2%. An income rider can provide additional peace of mind and financial security in retirement.

If the annuitant (the person or persons) receiving the income passes away before the money is paid back in income, the remaining balance will be passed on to their beneficiaries.  If the account value (premium + growth – expenses – income) runs out, the income is guaranteed no matter how long the annuitant(s) live!

Single Premium Immediate Annuities (SPIAs)

A Single Premium Immediate Annuity (SPIA) is a type of annuity that you purchase with a single lump-sum payment, and it provides you with an immediate income stream for a specified period or for the rest of your life. SPIAs can be an excellent choice if you’re looking for a reliable and immediate source of income in retirement.

If you would like a lifetime income, but are worried about the annuity company keeping your money if you pass away early, then you would want to use one of the following options:

Lifetime with Return of Premium (ROP)

This ensures a guaranteed lifetime income for the annuitant(s), but also will return the remaining premium if there is an early passing and all of the money has not been paid out.

Lifetime with Period Certain

This option ensures a guaranteed lifetime income for the annuitant(s) but will pay for a specific number of years (ex. 5-30 years) if the annuitant(s) passes away during that time frame.

Ex:  Mike and Stacey want a guaranteed lifetime income, so they transfer a portion of their retirement fund into a Lifetime SPIA with a 20-year Certain.  Both Mike and Stacey pass away after 10 years.  The annuity will continue to pay their beneficiary every month for an additional 10 years.

Multi-Year Guaranteed Annuities (MYGAs)

Multi-year guaranteed annuities (MYGAs) are similar to CDs offered by banks but issued by insurance companies. They provide a fixed interest rate for a specified period, typically between 3 and 10 years. MYGAs can be an excellent option for conservative investors looking for a guaranteed return on their investment.

MYGAs are the most straightforward annuity available and have no fees attached to them (at least not the ones I offer).

Variable Annuities

Variable annuities are a type of annuity that allows you to invest in a variety of subaccounts, such as mutual funds or index funds. The value of your annuity and the income it generates can fluctuate based on the performance of the underlying investments. While variable annuities offer the potential for higher returns, they also come with increased risk and often higher fees.

Most VAs come with relatively high fees and offer a lower guaranteed income than Fixed Indexed Annuities with Income Riders, or SPIAs.  Plus, some VAs only allow for one annuitant on the income rider.

Key Takeaways

  • FIAs offer a guaranteed minimum interest rate or potential market-based growth, while fixed index annuities with income riders add a guaranteed lifetime income benefit.
  • SPIAs provide an immediate income stream for a specified period or life, while MYGAs offer a fixed interest rate for a set term.
  • Variable annuities allow you to invest in subaccounts, but they come with increased risk and fees.

If you’re unsure about which type of annuity is right for you, or if you’re not quite ready to trust your advisor, feel free to contact me with your questions by clicking the “Schedule a Call” button. I’m here to help you make the best decision for your retirement. Remember, knowledge is power, and I’m always available to clear up any confusion you might have.

All the best,


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