Annuities are available in several forms and types, and different annuities have different properties and costs. The properties and costs of annuities are very important factors that require to be considered properly as business owners put together their retirement investment portfolio. Here are a few common types of annuities defined below.

As the name suggests, an immediate annuity begins providing payouts immediately. The payouts may run either for a specific period or for life, depending on the contract terms. The immediate annuities that are generally bought with a one-time deposit, with a minimum of around $10,000 are not very common. This class of immediate annuities normally appeals to people who wish to roll over a lump-sum amount from a pension or inheritance and start drawing income from it. People prefer immediate annuities to regular bank accounts because the principal grows more quickly through annuity investment and because the amount and duration of payouts are guaranteed by contract.

On the other hand, a deferred annuity delays payouts until a specific future date. In deferred annuity the principal amount is invested and allowed to grow tax-deferred over time. Deferred annuities are more common that immediate annuities. Deferred annuities appeal to people who want a tax-deferred investment vehicle in order to save for retirement.

A fixed annuity offers a guaranteed interest rate over a certain period, usually between one and five years. Fixed annuities are comparable to certificates of deposit (CDs) and bonds, with the main benefit that the sponsor guarantees the return of the principal. Fixed annuities generally offer a slightly higher interest rate than CDs and bonds, while the risk is also slightly higher. Additionally, in fixed annuities also the principal is allowed to grow tax-deferred until it is withdrawn.

On the other side, a variable annuity offers an interest rate, which changes based on the value of the underlying investment. Variable annuities are more popular that fixed annuities. The buyers of variable annuities can usually choose from a range of stock, bond, and money market funds for investment purposes in order to diversify their portfolios and manage risk. The minimum investment in variable annuities usually ranges from $500 to $5,000.

Variable annuities usually feature varying levels of risk, from aggressive growth to conservative fixed income. In most cases, the annuity principal can be shifted from one investment to another without being subject to taxation. The variable annuities are subject to market fluctuations, however, and investors also must accept a slight risk of losing their principal if the sponsor company encounters financial difficulties.

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