What Is a Delayed Annuity?
A delayed annuity is when the first payment is not paid immediately but rather sometime in the future (at least 1 year from the annuity start date). A delayed annuity, also known as a deferred income annuity, is a type of life annuity that guarantees a reliable stream of cash payments to an annuitant until death.
Delayed annuities may be funded with multiple contributions or one lump-sum payment.
The death benefit is often pass passed down to primary or contingent beneficiaries at the time of the annuitant’s death.
How a Delayed Annuity Works
A delayed annuity has 2 phases: the accumulation phase and the distribution phase. The annuity grows during the accumulation phase. The annuity pays cash payments to the annuitant during the distribution phase.
Accumulation Phase
Single-Premium Delayed Annuities
Single-premium delayed annuities are funded with a single (one-time) premium payment that will grow during the accumulation phase.
Flexible-Premium Delayed Annuities
An annuity owner may make additional payments during the accumulation phase after making an initial premium payment In a flexible-premium deferred annuity.
Distribution Phase
Annuity owners have 3 ways to collect income in the distribution phase:
- Annuization
- Lifetime Withdrawals
- Systematic Withdrawals (withdrawing like a savings account at a bank)
A delayed annuity owner may not need to convert the annuity into a series of income payments. Instead, they can withdraw money from the annuity in a lump sum, or you can transfer the money to another annuity.
When an annuity is purchased this way, the buyer retains control of the funds rather than being trapped into payments by initiating an annuitized distribution.
Types of Delayed Annuities
Annuities with a long-term investment horizon can be purchased as delayed annuities, which are offered in several forms depending on the need of the annuity owner.
Fixed Delayed Annuity
A fixed delayed annuity (also known as a fixed deferred annuity) works in the same manner as a certificate of deposit, except that the tax on interest is postponed until withdrawal. In addition, the insurance company usually defines the guaranteed interest rate paid by the annuity.
Variable Delayed Annuity
A variable delayed annuity (also known as a variable deferred annuity) is like investing in mutual funds in that the performance of sub-accounts will influence the returns. These annuities have the potential to be riskier and more expensive. Annuity Owners can lose money in this type of annuity.
Delay Longevity Annuity
A longevity annuity is similar to a straight life annuity, although it usually begins much later than the retirement age. The product serves as longevity insurance in that payments may not begin until after the retiree’s other assets have been depleted.
Delayed Annuities At A Glance
| Variable Annuity | Fixed Index Annuity | Fixed Annuity | Deferred Income Annuity | |
|---|---|---|---|---|
| Principal Protection | No | Yes | Yes | Yes |
| Access To Principal | Yes | Yes | Yes | No |
| Control Over Money | Yes | Yes | Yes | No |
| Tax-Deferred Growth | Yes | Yes | Yes | No |
| Guaranteed Growth | No | Yes | Yes | No |
| Guaranteed Income | Yes | Yes | Yes | Yes |
| Inflation Protection | Yes | Yes | No | Yes |
| Death Benefit | Yes | Yes | Yes | Yes/No |
| Long-Term Care Help | Yes | Yes | Yes | No |