Immediate vs. Deferred Annuities


Annuities provide an income stream after you make an investment. But not all annuities are the same in terms of how the savings build and what your payouts will be like. It comes down to your preference between immediate and deferred annuities. Both have their own benefits, but one may be a better choice for you.

What Are Annuities?

Annuities are routine payments you receive in exchange for an investment. The payments can last for a number of years, or they can last a lifetime. 

You can choose a fixed income stream where you get the same amount of funds released to you monthly, quarterly, semiannually, or annually. Or if you’re able to tolerate risk, variable and indexed annuities supply you with additional income from thriving market performance.

You won’t have to worry about contribution limits like you would with a 401k, so the sky’s the limit when it comes to your returns.

You can also set your account up to cover you and your spouse. If you pass away, the payments will then go to your spouse. You may also select beneficiaries.

How Do Immediate Annuities Work?

Immediate annuities involve making a lump-sum payment and then receiving regular payments shortly thereafter.

Many choose to receive lifetime payments, but you can get a term immediate annuity, which provides payments for 5-20 years.

Taxes on earnings depend on how you fund your immediate annuity. If you invest in an immediate annuity with pre-tax income, you have a qualified immediate annuity, where the payments are taxed as regular income.

If purchasing an immediate annuity with after-tax income, then it’s a non-qualified immediate annuity. Here, a portion of your payments wouldn’t be subject to income tax, but the interest earned on your payments would.

How Do Deferred Annuities Work?

Instead of immediate payments, deferred annuities have two phases – accumulation and payout.

During the accumulation phase, contributions are also made in segments instead of all at once. As you contribute, your savings build tax-deferred. This can take place over the course of several years.

The payout phase is when you begin receiving payments. This can be in the form of one lump-sum payment or multiple payments. Withdrawals count as taxable income.

There are withdrawal limits. If you withdraw from your account before you reach the age of 59 ½, you may have to pay an additional 10% tax penalty.

Which Should I Choose?

If you’re nearing retirement age and need routine payments right away, then an immediate annuity would be ideal. If you’re younger, and you want to contribute to your retirement over the course of many years, then a deferred annuity may be the better option.

Prepare For Your Financial Future Today

At Senior Health Solutions, we want you to be able to live comfortably. It’s never too early to begin saving and investing. Whether you choose immediate or deferred annuities, you will be in a much more comfortable place when the payments start rolling in. Call us today at (636) 244-4415.

Contact Senior Health Solutions!

With Affordable Healthcare Solutions, you’ll enjoy the best customer experience available in the health insurance industry. Our licensed health insurance agents and knowledgeable customer service representatives’ work with you individually to ensure you make the most of your money. Count on us for professional, unbiased advice.