Beginning To Save For Retirement? Annuities Vs. 401Ks & 2 Steps To Choosing One

18 October 2017
 Categories: , Blog


If you are just beginning to save for retirement, then you may be overwhelmed by all of your retirement investment account options. Two types of retirement investment accounts many new investors consider are 401(k)s and annuities. While you can invest in both, it is important to know the difference between the two in case you want to start saving for retirement by investing in just one fund. 

Read on to learn the difference between annuities and 401(k) accounts and the main two steps to choosing the annuity that is right for you. 

Annuities Vs 401(k)s: What's the Difference?

While annuities and 401(k)s are both great retirement savings plans, they differ in several ways. First, while 401(k)s are typically offered by employers who often match employee contributions, you can invest in an annuity whether your workplace offers a retirement savings plan or not. 

Annuities are also considered a form of insurance, while 401(k)s are not. Unlike 401(k)s that employees typically make contributions to on a very regular basis, you can choose whether to invest one lump sum into an annuity or make many contributions into it over time. 

As you can see, annuities and 401(k)s differ greatly. 

2 Steps to Choosing Your Annuity

If you like the idea of a retirement investment account that you can obtain outside of your workplace and that you can choose to invest in just once or many times, like an annuity, then you need to know the two steps to choosing the right type of annuity for you. 

First, you need to choose between a deferred and immediate annuity. Deferred annuities are best for anyone who wants to see their investment grow greatly while they wait a number of years before they begin receiving payouts. If you will be retiring soon, then an immediate annuity may be a better choice for you, because you can begin receiving a return on your investment immediately. 

Next, you need to decide between a fixed and variable annuity. With a fixed annuity, the insurance company you choose to handle your account will give you a guaranteed interest rate for the first year after you open the fund, and the rate can then fluctuate year to year. However, it will never fall below a promised minimum rate set by the insurance company. 

If you choose a variable annuity instead of a fixed annuity, the insurance company will spread your funds among various investments, such as stocks, bonds, and mutual funds. This leads to the interest rate of your annuity fluctuating based on how well the various smaller investment funds perform.

If you are looking to save for retirement, then you may be considering your investment options. Now you know the difference between annuities and 401(k)s and the two steps you need to make to choose the annuity that is right for you. 

For more information and options, contact professional annuity services or financial planning services in your area.