Annuities are largely retirement instruments designed to mitigate or reduce longevity risk. Essentially a contract with an insurer to convert funds that you invest overtime into a lifelong income at maturity. It is an accepted fact that no other financial instrument offers such a guaranteed lifelong income.

Fixed or Variable interest rate annuities

Fixed annuities are the ones that declare their interest rates yearly and guarantee a minimum interest rate. Fixed-annuities generally tend to use securities and bonds as their vehicles internally. Variable annuities on the other hand usually do not include any minimum guarantee for the interest rate. Often managed like mutual funds they pass on their expenses and charges onto your pocket. Variable annuities often tend to use vehicles of high-risk capital appreciation such as open ended mutual funds or common stocks.

Immediate or Deferred premium annuities

An immediate annuity is one that takes a single one time premium. The conversion of this premium into a lifelong payment is based solely on its annuity rates. In contrast a deferred annuity receives its payments during its accumulation phase. It issues its payments after maturity. Immediate annuities basically skip this accumulation phase and convert the one time lump sum premium they take into guaranteed payments. Immediate annuities are exempt from taxes during their payout phase where as annuity income from deferred annuities is taxed after maturity. During the accumulation phase deferred annuities are tax exempted.

Unregistered or Registered tax annuities

Registered annuities are registered with the tax authorities and are the ones most people are familiar with. In contrast, unregistered annuities being unregistered are unable to offer tax exemptions on contributions. Offering higher interest rates, unregistered annuities may be regarded as long-term fixed deposits or even savings plan. Depending upon the source and level of your contribution you should choose the registered ones over unregistered ones.

The basics of annuity interest rates

Annuity rates are rates that insurers set and use to determine the amount of payout together with the cash value of your contribution at maturity. Differing across insurers, men usually get higher annuity rates due to higher life expectancy than women.

Why should I go for an annuity?

Let's summarize the important reasons:

Gives you a tax shelter
Give you protection from creditors
Guarantees lifelong income
Generally gives higher returns on lower risks

What should I think before going for one!

Being medium to long term, you must not rely on the invested fund for anything else
Tax exemptions are there however, payouts may be taxed
Returns are largely based on the reliability and credibility of insurer and insurer's policy.
Higher Inflation during payout may under value your investment
Annuities provide a fixed payout that continually declines in value