A Simple Explanation of Annuity Types

Annuity is a broad umbrella term, and lumping every type together is where a lot of confusion starts. There are really two main categories, immediate and deferred, and within deferred annuities there are several distinct product types, each built for a different purpose. Here's a plain-language map of the landscape, and where a Pension Strategy actually fits within it.

Immediate Annuities

An immediate annuity, sometimes called a Single Premium Immediate Annuity, works exactly like it sounds. You hand over a lump sum, and income starts almost right away, typically within a year. There's no accumulation phase, no growth period, just an immediate conversion of savings into guaranteed payments.

Deferred Annuities

A deferred annuity works differently. Your money grows for a period of time before you turn on any income, whether that's years or even decades. Most of the products people mean when they say "annuity" for retirement income planning fall into this category, and there are several distinct types within it.

Multi-Year Guaranteed Annuities (MYGA)

A MYGA works similarly to a CD. You lock in a fixed interest rate for a set number of years, and that rate doesn't change during that period. It's straightforward, predictable, and principal-protected, but it doesn't include the kind of income rider a Pension Strategy is typically built around.

Fixed Annuities (FA)

A fixed annuity guarantees a set interest rate, similar to a MYGA, but often with more flexible terms around how the rate can adjust over time. Your principal is protected regardless of what the market does.

Fixed Indexed Annuities (FIA)

This is where a Pension Strategy typically lives. An FIA credits interest based on the performance of a market index, with your principal protected from market losses. We've covered how this works in detail in a separate article. FIAs are also where income riders, the mechanism that turns your contract into a Pension Strategy, are most commonly available.

Variable Annuities (VA)

A variable annuity works very differently from the three types above. Your money is invested directly into subaccounts, similar to mutual funds, which means it carries real market exposure. Your account value can go up when markets do well, and it can genuinely go down when they don't. Selling a variable annuity requires a securities license, separate from the insurance license required for fixed and fixed indexed products.

Registered Index-Linked Annuities (RILA)

A RILA sits somewhere between a FIA and a VA. It offers some downside protection, often called a buffer, but that protection is limited. Losses beyond the buffer are still possible, unlike a FIA, which fully protects principal from market losses. Like a VA, a RILA is classified as a security and requires a securities license to sell.

Why I Focus on FA, FIA, and MYGA

I hold a Life and Health insurance license, not a securities license, which means I don't sell variable annuities or RILAs. That's not an oversight. It reflects the specific specialty I've built my practice around: guaranteed income that doesn't carry direct market exposure. VA and RILA products exist for people prioritizing market-linked growth potential and comfortable accepting real downside risk in exchange for it, a different goal than what a Pension Strategy is built to accomplish.

How This Fits Your Pension Strategy

A Pension Strategy is specifically built using fixed and fixed indexed annuities, the products where principal protection and guaranteed income riders are available together. Understanding where these products sit relative to the wider annuity landscape helps clarify exactly what you're being offered, and why.