There are two main types of annuities. Immediate and deferred. A deferred annuity forms through a series of premium payments, while an immediate annuity forms through a single, one-time lump sum.
Deferred annuities are easy to budget for and can provide lifetime income throughout retirement. These popular investment vehicles provide the ideal combination of protection and real growth potential.
Below we take a closer look at deferred annuities to help you make an informed decision.
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What is a Deferred Annuity?
An annuity is a contract between you an insurance carrier in which requires the insurer to make payments to you, either immediately or in the future. The payout from your annuity may come in two ways, either a single lump sum or through income payments that can last the rest of your life.
There are two main types of annuities.
Deferred annuities form through a series of premium payments. This type of annuity allows for easy budgeting and is a convenient way to build up your retirement income over time.
Immediate annuities form through a single, one-time premium payment, which makes the benefits of the annuity immediately available. Income payments can begin right away or delayed into the future.
Both types of annuities offer the same protection, growth potential, and possible lifetime income.
Benefits of a Deferred Annuity
- Conveniently fund the investment over time – easy to budget for
- Guaranteed income that can last the rest of your life
- Customized payout options to fit your overall financial plan
- Fixed or variable rates of return
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Types of Deferred Annuities
Annuities further differentiate by interest rates.
Fixed-rate annuities offer a guaranteed interest rate at which your investment grows. These are low-risk retirement investments that allow you to know how much your money will grow over the length of the contract.
Variable-rate annuities offer variable interest rates that fluctuate based on market performance. This type of annuity can provide higher yields. However, there’s also the risk of investment loss.
Indexed annuities can offer fixed or variable interest rates. This type of annuity places your funds inside a stock market index. The rate at which it grows will depend on index performance as well as the details in the annuity contract.
Who are Deferred Annuities for?
After the recession of 2008, many people have shifted their retirement savings away from traditional retirement investments such as 401k’s and IRA’s to avoid market exposure. As a result, many have turned to annuity investments to protect against market exposure while maintaining real growth potential.
Deferred annuities are for individuals who do not need an immediate source of income. Instead, deferred annuities allow you to build your retirement income over time. Individuals who need income right away should explore immediate annuity opportunities.
An annuity that is part of a qualified retirement plan has tax advantages that help you grow your income throughout retirement. Qualified retirement annuities form with pre-taxed premium payments, allowing your investment to grow at a faster rate. This tax advantage allows you to delay your tax obligation until you begin taking income payments.
Learn more about qualified vs. non-qualified annuities.
Finding the Best Interest Rates
Finding your best interest rate can be tricky. However, taking the time to do so can have a big impact on the growth of your investment.
The good news is we’re here to help. Our independent agency helps you shop and compare annuity companies nationwide to find your best investment opportunities and interest rates.
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