Based on the type of payout of the benefits, annuities are classified as immediate income and deferred income (that includes fixed payment, variable payment, equity indexed) annuities. Although annuities provide tax benefits, there are a lot of costs involved in it when compared to traditional investment plans. Once the investment type is chosen, it is important to consider other aspects of investing in annuities to earn the best income.

• Expenses involved in an annuity are surrender fees, commissions and monthly fees.

The benefits payout options is also another aspect that needs to be looked into to earn maximum income. These can be broadly categorized into three types:

• Guaranteed period payment: The return of the principal (initial investment) and the interest will be paid back by the insurer within an agreed period of time. It may be paid back in series or as a lump-sum amount. Here, the investor can be sure of getting back all the benefits within a certain time or while he is alive and the insurer does not retain back any of the earnings of the investor in case of his death.
• Lifetime payment: The principal and the interest earned based on the initial set rate will be paid on a monthly basis to the investor until he is alive. While an early death may not earn maximum benefits, a longer life means earning beyond the growth of the actual investment.
• Survivor payments: The investment and earnings is transferred to a joint applicant or a nominee even after the investor has died. This will help in financially aiding the survivor (spouse, children or other nominee) in the absence of the investor. The payouts may last longer in this case and thus earnings will be higher.

Apart from providing benefits of tax deferral, fixed payment annuities also offer a slightly higher rate of growth due to the following reasons:

• The surrender charges usually reduce with increase in number of years as compared to IRS.
• Maturity is usually between one to ten years and mostly there will be automatic renewal unless voluntarily withdrawn.
• Rate of interest will be updated with the current rates at the time of renewal.

After making a comparative analysis, deferred income annuities seem to offer a guaranteed retirement income. These annuities pay around 3-4% higher than a standard 10 year treasury bond. Also, some tax rules allow consumers to invest 25% or up to $125,000 into an annuity. But this required IRA withdrawals to begin after completing 70.5 years of age and income to be withdrawn by the age of 85. These are often called as qualified retirement plans and are regulated by ERISA. Any qualified plan must provide annuities in the form of SLA (Single Life Annuity) and a QJSA (Qualified Joint & Survivor Annuity).