Ordinary Annuity vs Annuity Income

Suppose you are currently preparing for retirement and are looking into annuities. In that case, you may have encountered the phrases “ordinary annuity” and “annuity income” and wondered what the difference was between the two. Retirement can be a confusing and stressful thing to plan for, but luckily, annuities are investment tools that can help make your future plans affordable and sustainable. When deciding whether to purchase an annuity, it can be helpful to explore all your options to figure out which decision is the best for you. Both ordinary and income annuities can provide security and flexibility during retirement, depending on your choice of lifestyle in retirement. Once you are able to decipher the difference between ordinary annuity vs. annuity income, it makes it much easier to create plans for your retirement. 


Ordinary Annuity

An annuity is a contract between an individual and an insurance company. The investor provides a large sum of money that is exchanged for a steady stream of income in return. While there are many different kinds of annuity, ordinary annuity means the cash flow occurs at the end of a specific period. For example, if there is a cash flow of $500 per year for five years, each cash flow would occur at the end of each year. Interest payments from bonds usually follow the use of an ordinary annuity agreement system as well since most of those payments are made semiannually. Because of the time value of money, the value of an ordinary annuity depends mainly on the interest rate. If the interest rates are declining, ordinary annuities are more likely to increase their present value. 


Annuity Income

Unlike ordinary annuity investments, annuity income provides cash flow according to the agreements of the contract and the type of annuity income that was decided on. Instead of the steady income ending after a certain time, the cash flow from annuity incomes can last for an extended period or for as long as the buyer is alive. These are also regularly made payments based on the agreement made by the investor and the insurance company. This can be a beneficial source of income in retirement as it is consistent and isn’t a contract you can outlive. 


Types of Annuity Income

There are three type main types of annuity income: fixed, variable, and immediate annuity. All of them have their pros and cons, but it is up to your personal preferences which one will best suit your individual needs and lifestyle. 


Fixed Annuity

If you are someone who has a lower risk tolerance and is nervous about market fluctuation, a fixed annuity is an option that offers a base level of security. As the name implies, fixed income provides a fixed, guaranteed interest rate while also ensuring that any interest earned is tax-deferred.


Variable Annuity

A variable annuity offers various investment options to choose from and then pays you a retirement income level that is determined by how well your chosen investments are performing. This type of annuity is often considered to be a long-term investment tool because while it may take longer to see the benefits, it can potentially lead to a better deal in the end. Of course, this results in a level of personal risk. Hence, it’s important to be careful when deciding which investment options to choose from. 


Immediate Annuity

Immediate annuity is the simplest of the three annuity income options. The investor makes one large contribution, and it’s converted into an ongoing stream of consistent income for either an extended period of time or for a lifetime. As the name suggests, these ongoing payments start immediately and continue consistently as per the terms of the agreement. 


Key Differences

Each annuity has its strengths and weaknesses. A fixed annuity can be a good choice for those looking for security and a straightforward plan for a specific length of time. Because the interest rate is consistent, the predictability of your payments can feel more timed out and safe. However, this annuity fails to offer growth potential or cash value. On the other hand, a variable annuity provides you with the freedom to choose your own investors and possibly receive greater income than a fixed one. This annuity might give up some security regarding payment duration consistency, but it does allow for more flexibility and control of your finances. Unlike variable annuities, however, immediate annuities provide the instant results that variable annuities can often lack. The downside is that payments could lose value from inflation, while fixed and variable annuities can offer a little more control and security. Each of these investment tools can help you in your retirement, depending on your individual needs for security, flexibility, and consistent payment durations. 


Factors to Consider

Everyone’s retirement will look a little different depending on the needs and wants of the individual. It’s important to consider what kind of goals you have for yourself in retirement; and what kind of lifestyle you want to live. Keep in mind your risk tolerance, objectives, and the financial planning you’ve made up until now. 



The differences between an ordinary annuity and an annuity income can seem insignificant. Still, it is crucial to know and understand the differences between the various types of investment tools when deciding on what annuity to pick. Each annuity will have a different effect depending on your retirement goals and lifestyle. But, whether it’s an ordinary, fixed, immediate, or variable annuity, each one can benefit and help an individual with their retirement goals. If you want to learn more about annuities, don’t hesitate to contact us at Oxford Advisory Group to discuss any possible options. Our team is here and ready to help.


This report was prepared by Oxford Wealth Group, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Form ADV Part 2A & 2B can be obtained by visiting https://adviserinfo.sec.gov and search for our firm name.  Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice.

This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may receive this report.

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