What is a Deferred Annuity?
A deferred annuity is a financial product designed to provide income during retirement. Unlike immediate annuities, which start paying out right away, deferred annuities accumulate value over time. This makes them an attractive option for individuals looking to grow their retirement savings before they start receiving payments.
How It Works
A deferred annuity typically consists of two phases: the accumulation phase and the distribution phase. During the accumulation phase, you make contributions to the annuity, allowing your investment to grow, often on a tax-deferred basis. This means you won’t pay taxes on the earnings until you withdraw the funds in retirement.
Types of Deferred Annuities
- Fixed Deferred Annuity: Offers a guaranteed interest rate for a specified period.
- Variable Deferred Annuity: Allows you to invest in various investment options, with returns based on market performance.
- Indexed Deferred Annuity: Ties returns to a stock market index, providing potential for higher returns while limiting downside risk.
Benefits
Deferred annuities offer several benefits, including tax-deferred growth, flexibility in payment structures, and the ability to provide guaranteed income in retirement. They can serve as a crucial part of a holistic retirement income strategy, ensuring financial security during your golden years.