Deferred Annuities

Given today's uncertain market conditions, combined with increased longevity, it is more important than ever for consumers to ensure that they have a long-lasting income stream in retirement - and one that will help them to continue purchasing the goods and services that are needed in the future, even as prices rise with inflation.

One financial tool that can help with providing an income source down the road, and in turn, ease the concern about running out of money when it is needed the most, is the deferred annuity.

What is a Deferred Income Annuity (DIA)?

A deferred annuity is a type of annuity that is designed to pay out an income stream at a point in the future. For instance, deferred annuities will often begin to pay out when the annuitant reaches a certain age, such as 80 or 85.

Just like with other types of annuities, a deferred annuity has two "phases." These are the accumulation phase and the income phase. During the accumulation phase, contributions are made into the annuity. These contributions may consist of a single lump sum, or of periodic deposits over time.

During this phase, the money that is inside of the annuity is allowed to grow on a tax-deferred basis, meaning that no taxes are due on the gain of these funds until the time of withdrawal (or income payout).

When the time comes for the annuity to start paying out an income stream, the annuitant can typically choose from a number of different payout alternatives. For instance, he or she may want to receive income for a set number of years, or conversely, they may choose the lifetime income option where the income will continue for the remainder of the annuitant's lifetime - regardless of how long that may be.

Is a Deferred Income Annuity Right for You?

Although deferred annuities can provide many nice benefits, these financial vehicles are not right for everyone. So, prior to purchasing this type of an annuity, it is important to determine whether or not it would be a good financial tool for you.

Those who may be a good candidate for purchasing a deferred annuity can include the following:

  • Working individuals who wish to accumulate savings over time that can later be converted to retirement income
  • Investors who are looking for tax-deferred growth on their long-term funds
  • Those approaching retirement who are looking for guaranteed income for a specific amount of time (or for life)
  • Couples who want to ensure that both spouses will receive incoming cash flow, even after the death of one spouse
  • Individuals or couples who are seeking a retirement income that cannot be outlived - regardless of for how long
How to Ensure That You Choose the Right Deferred Annuity Option

Including a deferred annuity in your overall financial plan can provide a way for you to have a longer-term and tax-advantaged retirement savings vehicle that can also offer you a guaranteed income stream in the future.

But because not all deferred annuities are exactly the same, it is essential that you first compare the various options with an expert in the annuity field. That way, you can be better assured that the deferred annuity you ultimately end up with is a good fit for you and your specific needs.