In the first instance, an annuity is a contract in which an individual agrees to pay premiums to an insurance company and receives, in exchange, a regular stream of income payments form the issuer. This is one of the ways by which one plans for his retirement days. With this program one saves enough, which he may not outlive during his retirement days.

There are different types of annuities and this can be classified in a number of ways. In the first place, annuities can be classified based on when the payments starts. Under this classification, there are Immediate annuities and Deferred annuities. With regard to Immediate annuities the issuing company begins payments for life or for a specified amount of time in exchange for the person’s one-time contribution. Under this, you can choose to receive your payments on a monthly, quarterly, semiannual or on annual basis. In Immediate annuity, a measure of each payment represents taxable interest, and the other part is a tax-free return of your principal. While on Deferred annuity, you can fund your annuity through a single payment or through flexible payments for some amount of time. This type of annuity helps you to accumulate money for your retirement, especially for longer period of time. In this too, your money will be growing while the tax due to your annuity is deferred. This means that you do not pay tax until you withdraw your money.

On the other hand, annuities can be classified according to the mode of payment. Under this classification, there are Single premium annuities and flexible annuities. Single annuities make you turn a large sum of money into a guaranteed income. This can help those who have cash from an inheritance, legal settlement, and business income, to fund an immediate or deferred annuity. For those who are approaching their retirement period, and who have assets accumulated in a retirement scheme or other form of savings, it will also help them to fund an immediate or deferred annuity. A flexible annuity on its own helps you to fund for a period of time, usually for years. It will also allow you to pay premiums of different amounts within a stated minimum and maximum range on a set plan or arbitrarily. With this, your assets accumulate on a tax-deferred basis and this can help you fund either fixed or variable deferred annuities.

Also, annuities can be classified based on where assets are invested. Under this you will see Fixed annuities, which guarantees you a specified rate of interest for a specified amount of time, and also offers preservation of your assets; protecting them from market instability. And a Variable annuities, which provides you with a greater opportunity for asset growth through a variety of investment choices, but it involves a lot of risks because of the varied nature in the asset growth.

In all, knowing the types of annuities helps you to know the type that appeals to your retirement plans.