During the accumulation phase, your money grows tax deferred. During the income (payout) phase, you withdraw your money according to a choice of options.
An annuity purchased with a single payment is called a single-premium annuity. People who have a large sum of money (for example, from an inheritance) may find this type of annuity appropriate.
An annuity purchased with multiple purchase payments, known as a flexible-premium annuity, allows you to add to your annuity at any time (usually subject to a minimum payment). A flexible-premium annuity can be more convenient, but be sure to read the rules of your annuity contract carefully. A new payment might carry its own withdrawal charge schedule. (See the accumulation phase)
A fixed annuity earns a guaranteed interest rate for a certain period of time (the interest rate is guaranteed by the insurance company). At the end of that period, you'll be offered a new fixed rate-usually based on current interest rates-for a new period. Your growth will be steady, and earnings are tax deferred until withdrawn. Remember to research the issuing company's financial position thoroughly. (See what type of annuity may be right for you)
You select an investment program by choosing from stock, bond, and money market funds according to a strategy of growth, income, and/or stability. The value of your annuity will vary according to the performance of the investment options that you choose. You can change your investment strategy as your needs or market conditions change without losing money to taxes.
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