Annuity Comparison Chart
Annuities come as fixed, variable or indexed and with immediate or deferred payment options. Although each type works like a life insurance policy in reverse in that payout occurs during the investor's lifetime, each has differences ranging from subtle to significant that can make choosing an annuity a challenge. A side-by-side comparison is a useful tool to highlight differences and to make informed investment decisions.
A side-by-side comparison chart starts with proper column and row headings. Across the top, create columns for fixed, variable and indexed annuities. Rows can include funding options, fees, rate of return, risk factors and payout options. Prioritize row headings according to how they relate to making investment decisions and add them to the chart. For example, if risk, fees and rate of return are the most important factors for decision making, add those before including funding and payout options.
Start with a general understanding of what annuities are and know some of their common features. For example, all annuities are a contract between an investor and an insurance company, all are a long-term investment option and all provide tax-deferred benefits as well as tax consequences for early withdrawal. Then, start at the top and conduct research before filling in the chart. Talk to an investment professional or conduct research using free information available at Internet sites such as the U.S. Securities and Exchange Commission, Investor.gov, Bankrate or a life insurance company website.
Take information gained from research and fill in the comparison chart. Funding options, for example, can show that fixed and indexed annuities have funding options that are both single -- a one-time lump sum payment -- and flexible – monthly payments spread over time -- while variable annuities offer only a flexible funding option. Rate of return options can show that fixed annuities pay a specific rate of interest over a specific period of time, the rate of return on a variable annuity depends on market conditions, and the rate of return on indexed annuities changes according to current returns on the stock market index, but often have a minimum contract guarantee.
Compare and contrast results against priorities, financial or retirement planning goals, timeline for investing tolerance for risk and budget. Make choosing between annuities easier by ranking matches in order of priority or by making an initial comparison and then first eliminating the annuity with the fewest matches. For example, if risk is a top priority, ranking reveals that fixed annuities are the safest option and variable annuities carry the most risk. If rate of return is the top priority, however, variable annuities have the potential to provide a better return than indexed annuities, and even better than fixed.
Based in Green Bay, Wisc., Jackie Lohrey has been writing professionally since 2009. In addition to writing web content and training manuals for small business clients and nonprofit organizations, including ERA Realtors and the Bay Area Humane Society, Lohrey also works as a finance data analyst for a global business outsourcing company.