Immediate Versus Deferred Annuities – We Answer Your Questions

Immediate Versus Deferred Annuities – We Answer Your Questions




An annuity is an investment means offered by an insurance company to individual investors looking to build up cash and/or create an income stream for retirement. There are two dominant income benefits options obtainable to annuity owners, immediate and deferred.

Immediate Annuities
As people approach retirement, their focus often shifts from the accumulation of assets, to the liquidation of assets for the purpose of creating an income stream. While many retirees of past generations were able to rely financially upon pensions offered by their employees, retirees of today are often forced to rely upon their own individual investments for their retirement income needs. One of the investment vehicles many individuals turn to upon retirement is the immediate annuity.

US citizens may start receiving payments at a minimum of 59.5 years of age – consequently immediate annuities are only an option for people of this age demographic. If withdrawals from an annuity are taken before that age, you will receive a tax penalty from the IRS, and possibly from the insurance company in addition. The income payments made to the annuitant will be make up of consistently principal and interest. How these payments are segmented depends on the kind of annuity chosen and the interest received – fixed, variable, or indexed annuity.

Deferred Annuities
A deferred annuity focuses on asset accumulation and tax deferral on the account interest. This kind of annuity has an accumulation period, which differs from the immediate annuity option. This kind of annuity can be funded with any premium plan depending on the kind of annuity (fixed, variable, or indexed) and the insurance company. Contributions into a deferred annuity can be utilized to build up funds for retirement, as they will grow on a tax deferred basis.

Both annuities serve different investment purposes, giving individual investors options for how they will build up funds for retirement and how they will receive those funds during retirement.




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