Annuity Payments from CD-Type Annuities

Fixed annuities are popular among retirees and senior citizens. The investment is guaranteed, earnings during the accumulation period are not taxed, and annuity payments during the annuitization phase are partially tax free and can be guaranteed for life.  What's not to like?

But some people are unwilling to invest in a fixed annuity because traditional fixed annuities don't provide any interest guarantee after the first 12 months of the accumulation phase.  After the initial period of 12 months, the annuity payments could fluctuate and increase or lower with every passing calendar year.

Of course, once you annuitize (start taking payments) you will have  regular annuity payments for the entire duration of the contract. but we still have the issue of fluctuating rates during the accumulation phase.  The solution is the CD-type annuity.

CD-type annuities (also called multi-year guarantee annuities) offer a fixed interest rate during the accumulation phase. They are typically offered in terms for 3 to 10 years.  Don't be surprised of agents have not mentioned these as the commissions are usually lower for them.

When the term concludes, you will usually be offered a 30-day period to select your option which is usually

1. renew the annuity for the same term at the prevailing rate
2. annuitize the annuity (take annuity payments over a set number of years or lifetime)
3. leave it as an open contract (you can do whatever you want at any time) at a very low rate
4. move to another annuity company

Like all other conventional annuities, the earnings usually are not subject to income tax while the earnings remain in the account. Additionally, if you move your funds to another annuity company, such transfer, when done correctly, is a non-taxable event.  Therefore, before deciding to take annuity payments or any other options when your CD-type annuity matures, use the time to shop around and make the choice which best fits your needs. Look here for CD-type annuity rates.