Single Premium Immediate Annuities (SPIA) — Income Only
This is the original type of annuity going back to Roman Times. You give the insurance company your principal, and they pay you an income for 5–20 years or for life.
Pro: The income rate can be very high with a high degree of reliability and safety.
Con: You give up all access to your principal.
Deferred Income Annuities (DIA) — Income Only
"Deferral" means putting off/deferring immediate income. Why? To get a higher rate of income later.
Pro: A Deferred Income Annuity (DIA) is built on an immediate annuity chassis but allows you to put off the income until later—to achieve a higher income without risk, simply by waiting.
Con: Like an immediate annuity, you give up all access to your principal.
Fixed Index Annuities (FIA) — Income + Principal Protection
This type of annuity has gained significant popularity for IRA rollovers due to the fact that most people want to continue to own their principal AND receive income for life.
Pros: You keep control of your principal. Your principal may grow without market losses according to an index. Can pay an income for life without giving up principal.
Con: Like all principal protected annuities with higher rates, early surrender charges apply. Proper allocation can avoid unnecessary surrender charges.
Fixed Rate Annuities (FRA) — No Annual Fee
Fixed-rate annuities are straightforward and simple. Currently, rates on the top-ranked FRAs run between 5% and just under 6%, locked in and guaranteed for 3 to 10 years. Longer terms tend to pay higher interest.
Pro: You can withdraw your interest as you go or let it compound, tax deferred. No management or advisor fees.
Con: Like all deferred annuities, an early withdrawal surrender charge applies, allowing the insurance company to pay a higher rate of interest.
Fixed Index Annuity (FIA) — No Annual Fee
FIAs can be used for income replacement or pure accumulation. When used for accumulation, growth is linked to an index, but with no risk of loss. To offset the cost of providing principal protection, the insurance company must mitigate your rate of growth with a "cap" or a "participation rate."
Variable Annuities — 2% to 4% Annual Fees