If an annuity is considered an “immediate” type, it can reach payoff or be immediately paid after the investor funds it. This type is most commonly used in situations where a lump sum payment is received (e.g., lottery, etc.) and allows the investor to fund the annuity and start receiving payments immediately. The payments are primarily determined based on how much is funded and the selected length of time, which could be as few as five years.
Annuities that are considered “deferred” involve a surrender period, allowing investors to make payments to fund it until the selected maturity. Once an annuity reaches the end of the surrender period, it can begin annuitization, making payments similar to an immediate plan. The amount is primarily determined by how much is funded and the selected length of the payment time, which could be specific or until the beneficiary dies.
A fixed annuity can be considered either immediate or deferred but will ultimately reach the payout phase, where the investor gets paid. If the payment structure is “fixed,” the investor will get regular payments for the phase duration. These payments are generally based on a rate comparable to the contributions that were received.
Like fixed annuities, variable annuities can also be considered either immediate or deferred and will reach some payout. Variable annuities provide a variable payment structure based on the participant’s contributions and rates that fluctuate based on a chosen investment portfolio’s performance within the annuity. These annuities could be riskier and could provide lower or higher payments depending on various circumstances, like the portfolio’s economic growth and stability.