Deferred Annuity: 7 Retirement Savings Plans

Shawn Plummer

CEO, The Annuity Expert

A deferred annuity is a retirement savings plan that allows you to postpone making payments for a set amount of time. This can be a great option if you are looking for a way to save for retirement but don’t have the money right now. In this blog post, we will discuss the basics of deferred annuities and how they can help you save for retirement. We will also provide some tips on how to choose the right deferred annuity plan for you.

What is a Deferred Annuity?

A tax-deferred annuity is a retirement savings plan designed for accumulating money (cash value) with the option of converting retirement savings into a source of guaranteed income for life. Deferred annuities will grow on a tax-deferred basis, just like a 401k or IRA.

These annuities are the opposite of immediate annuities.

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How Do Deferred Annuities Work?

Deferred Annuities, also known as delayed annuities, work in 2 different phases:

Accumulation Phase

The accumulation period or deferral period is the period the deferred annuity accumulates wealth before receiving an income.

Distribution Phase:

The distribution period refers to when a policy owner either annuitize their annuity or turns on the optional lifetime income rider to start receiving annuity payments or lifetime withdrawals from the insurance company.

Tax-Deferred Annuity Types

There are two main types of deferred annuities: fixed and variable. With a fixed deferred annuity, you will earn a guaranteed rate of interest on your money. This can be a great option if you are looking for stability and predictable earnings. With a variable deferred annuity, your earnings will fluctuate based on the performance of the underlying investment options. This type of annuity can be a good choice if you are willing to take on more risk for the potential of higher returns.

Single-Premium Deferred Annuity

What is a single-premium deferred annuity? Single-premium deferred annuities (SPDA) are the type of annuities that can be purchased with one monetary deposit.

You can find single premium deferred annuities here.

Flexible-Premium Deferred Annuity

Flexible-premium deferred annuities are tax-deferred annuity plans that allow an owner to contribute additional funds to an existing policy during the contract’s accumulation period. If funds are added to a flexible-premium annuity, the insurance company typically invests the added funds in a fixed account until the following anniversary or annual reset period.

You can find flexible premium deferred annuities here.

How Do Interest Earnings Accumulate In a Deferred Annuity?

  • Fixed annuities guarantee your money will earn at least a minimum interest rate. Fixed annuities may earn interest at a rate higher than the minimum, but only the minimum rate is guaranteed. The insurance company sets the rates.
  • Fixed indexed annuities are fixed annuities that earn interest based on changes in a market index, which measures how the market or part of the market performs. The interest rate is guaranteed never to be less than zero, even if the market goes down. 
  • Variable annuities earn investment returns based on the performance of the investment portfolios, known as “subaccounts,” where you choose to put your money. The return earned in a variable annuity isn’t guaranteed. The value of the subaccounts you select could go up or down. If they go up, you could make money. But, if the value of these subaccounts goes down, you could lose money. Also, income payments to you could be less than you expected

Triple Compounding

Deferred annuities accumulate interest earnings on a tax-deferred basis which means taxes are not taken out until income is withdrawn from the annuity. As a result, triple compounding occurs, which is:

  • Earn interest on your principal
  • Earn interest on your interest
  • Earn interest on the money you usually lose to taxes

Features Of Deferred Annuities


Most deferred annuities allow for penalty-free withdrawals, systematic withdrawals, and waivers to assist in health-related issues like terminal illness, nursing homes, or home health care.

Annuitizing a deferred annuity with giving up all control over the asset with no liquidity.

Death Benefit

The remaining accumulation value in deferred annuities will transfer to the beneficiaries in a lump sum. A spouse may continue the annuity through spousal continuation. Depending on how payments were structured, the beneficiary will receive either remaining annuity payments or no death benefit if the annuity has been annuitized.


Deferred annuities offer tax advantages. Tax deferral means not paying federal income tax now but in the future when income is taken from the annuity.


Deferred annuities offer many types of optional riders, waivers, and benefits, including:

Single-Premium Deferred Annuity Pros And Cons


  • The taxes are deferred until income is withdrawn from the annuity in the future. Interest is earned on the money that would have gone to the IRS each year.
  • Deferred annuities can provide a retirement income for an annuitant’s entire lifetime, including keeping up with inflation.
  • Annuity owners can know today what their future guaranteed income in retirement will be.
  • Variable deferred annuities offer all the upside potential.
  • Deferred fixed and fixed indexed annuities offer principal protection while earning interest simultaneously.
  • Deferred fixed annuities offer higher interest rates than Certificates of Deposit (CDs).
  • Fixed index annuities allow owners to safely grow their retirement savings based on the performance of a stock market index, such as the S&P 500 while offering protection from a stock market crash.
  • Deferred annuities can help pay for long-term care expenses.
  • There is no medical underwriting with a deferred annuity allowing applicants that can’t get life insurance coverage an alternative to leaving a death benefit for their beneficiaries.


  • Deferred annuities are long-term contracts ranging from 2 to 20 years in length.
  • Some annuities charge hefty fees.
  • Liquidity is limited in annuities.
  • Annuity owners can’t collect income from their deferred annuity until age 59 ½ without being subject to a 10% tax penalty.
  • Annuity owners have to fill out another application that could be approved or disapproved.

Deferred Annuity At A Glance

Fixed Index
Principal ProtectionNoYesYesYesYes
Access To PrincipalYesYesYesNoNo
Control Over MoneyYesYesYesNoNo
Tax-Deferred GrowthYesYesYesNoNo
Guaranteed GrowthNoYesYesNoNo
Guaranteed IncomeYesYesYesYesYes
Inflation ProtectionYesYesNoYesYes
Death BenefitYesYesYesYes/NoYes/No
Long-Term Care HelpYesYesYesNoNo

What Do My Beneficiaries Receive When I Die?

Deferred annuities offer a simple standard death benefit that is the annuity’s accumulation value or the minimum guaranteed surrender value, whichever is greater. 

Helpful tip: If you want to leave money to your beneficiaries, life insurance might be a better option for you. In some cases, you don’t need to take a medical exam. Use our quoting tool to find the cheapest life insurance. Coverage starts at $9.37 per month.

What Is The Difference Between Immediate And Deferred Annuities?

The main difference between immediate and deferred annuities is when you start receiving payments. With an immediate annuity, you make a lump-sum payment and then start receiving payments immediately. These payments can be for a specified period of time, such as 10 or 20 years, or they can be paid out for the rest of your life. With a deferred annuity, you and your insurer agree on a schedule of payments, but you don’t start receiving them until some future date. This date can be anything from one year to 30 years in the future.


If you are looking for a way to save for retirement, annuities could be an excellent choice because they offer a variety of benefits. For example, with an annuity, you can choose to have your payments made in a lump sum or as an income stream. You also won’t have to pay taxes on your earnings until you withdraw the money from your account. There are several types of deferred annuities, be sure to compare different options before choosing one that best meets your retirement goals. Request a quote below.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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