How do deferred and immediate annuities differ?

Annuities have been in operation for more than two hundred years. They can be paid out during the person's lifetime or for a definite time. You can get them from insurance companies through licensed agents. There are different types of annuities. Here we will have a look at a deferred annuity, which builds value over time if you want to have your income later on and an immediate annuity, which is set up if you want the income at present. The main difference between these two types of annuities is that you can purchase deferred annuities with the entire sum payment or a sequence of systematic payments.

• A deferred annuity is good as it helps you save for things like retirement. After a certain period of time a fixed income will come to you. The income that you invest in an annuity grows and you begin receiving it only when you really need it. The income increases and multiplies on a tax deferred basis and the tax is paid only once when you start deriving the money. What is also good, there are no limits on your annual annuity contributions. Moreover, there is a death benefit. This means that in case of your death, the annuity income is paid to your heirs, including investment earnings and excluding the cash withdrawals you made. This is a perfect way to plan your future.
• If you have a good deal of money and do not want to invest it, you can convert it into an immediate annuity that will give you an opportunity to receive income instantly. Generally, payments start in a month after buying the annuity. You may feel financially secured receiving this form of income for the rest of your life. An immediate annuity has some great advantages, such as security in future income, simplicity (you will not have to manage an investment portfolio), high returns and preferred tax treatment. This variant is good especially for those who are going to retire soon and need to supplement their income.

Both deferred annuities and immediate annuities can be fixed or variable. Fixed immediate annuity income payments depend on the amount you contribute, your age and the interest rate at the time of buying it. Those payments will not increase or decrease. Variable immediate annuity payments differ depending on the investments you opt for.

Related

• Four things to consider before purchasing annuity insurance.
• Find out what an annuity is?