An annuity is an investment option that can provide a guaranteed income for an individual or their spouse throughout their retirement. There are four main considerations to choosing what annuity would best fit your needs – timing, rate of return, payout term and payout type.

In addition, there are a few key questions to consider. What are your financial goals for the future? How much money do I want to invest? When would I want my payout to begin? and Are comfortable putting money into a plan you cannot access for several years?

Use these four steps to figure out which type of annuity would work best for you.

Step 1: Choose When Payouts Begin

The first step in selecting an annuity is deciding when you would like to start receiving your money. There are two options:

• Deferred - Payouts start at a date in the future
• Immediate - Payouts start shortly after a single premium (lump sum) payment is made

Step 2: Select the Rate of Return

There are three types of annuities based on the rate of return desired. This is where it’s important to consider the amount of risk your comfortable taking.

• Guaranteed/Fixed – the payout is based on an amount guaranteed in the contract, payments are normally fixed and the insurance company bears the investment risk
• Variable – both the account earnings and payout are variable and not guaranteed, although contracts may offer minimum guarantees as an option
• Indexed - Indexed annuities have characteristics of both fixed and variable annuities and usually provide a guaranteed minimum interest rate and an interest rate tied to a market index

Step 3: Select Payout Term

Annuities offer five types of payout options (similar to life insurance settlements):

• Lifetime (of policyholder) - Income payments last for the lifetime of the annuitant, and then terminate
• Lifetime with remaining funds paid to the beneficiary - Income payments are made to the primary annuitant and if they pass away their survivor(s) receives some payment after the death of the annuitant.
• Guaranteed for 5, 10, 15 or 20 years and/or for life (also called “period certain”) - Annuity payments continue for a minimum number of years. Depending on the contract terms, payments may end once the set number of years has passed or may continue for the lifetime of the plan holder.
• Joint (and survivor) - Payments only continue during the lifetimes of both participants. Joint payments may remain consistent or be reduced following the death of the primary participant.

All payout terms except for single life allow for remaining funds to go to a beneficiary named in the contract.

Step 4: Select Payout Type

There are two standard plan options for an annuity payout:

• Lump sum withdrawal (fees may apply) – annuitants receive all the entire payout at once
• Annuitize contract (begin monthly payments) – monthly payments are made based on previously chosen payout timeframe.