The Main Difference Between Immediate and Deferred Annuities

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

What Distinguishes a Deferred Annuity from an Immediate Annuity?

Immediate Annuity:

  • Payout Start: Begins almost immediately, usually within a year of purchase.
  • Purpose: Ideal for individuals seeking immediate income, typically retirees.
  • Income Stream: Provides a steady stream of income for a specified period or lifetime.
  • Investment Period: Short-term, as payments start soon after investment.

Deferred Annuity:

  • Payout Start: Payment begins at a future date, often years later.
  • Purpose: Suited for long-term retirement planning.
  • Income Stream: Accumulates value over time before income payments start.
  • Investment Period: Longer accumulation phase allowing investment to grow.
Difference Between Immediate Annuity And Deferred Annuity

Immediate vs. Deferred Annuity

FeatureImmediate AnnuityDeferred Annuity
Payout StartWithin one yearAt a future date
PurposeImmediate incomeLong-term growth
Income StreamRegular, immediateDeferred, growth-focused
Investment PeriodShortLong
Immediate Vs. Deferred Annuity With Guaranteed Lifetime Withdrawal Benefit

Immediate Annuitization vs. Immediate Lifetime Income Riders

Immediate annuitization is when one converts their lump sum into immediate periodic payments, typically for life. It’s irrevocable, meaning once chosen, it can’t be reversed.

Immediate lifetime income riders, however, offer the same immediate payouts but with added flexibility, like the potential for increasing payments over time.

Example: Lisa opts for immediate annuitization. She cannot change or reverse this decision later. David chooses an immediate lifetime income rider, giving him the potential for increasing payouts.

Difference Between Immediate And Deferred Annuities

Deferred Annuitization vs. Deferred Lifetime Income Riders

Deferred annuitization is letting your initial investment grow before starting fixed payments in the future.

On the flip side, deferred lifetime income riders not only offer a future payout but also guarantee certain benefits like guaranteed lifetime withdrawal benefits or a lump sum death benefit.

Example: Robert chooses deferred annuitization. He begins his payouts at 65. Karen opts for a deferred lifetime income rider, ensuring her beneficiaries get a lump sum death benefit.

The Main Difference Between Immediate And Deferred Annuities Is

Pros and Cons of Immediate vs. Deferred Annuities

  1. Immediate Annuity
    • Pros: Immediate income, simple structure, guaranteed payouts.
    • Cons: Irrevocable, does not earn interest, limited flexibility.
  2. Deferred Annuity
    • Pros: Potential for growth, tax-deferred earnings, flexibility in start date.
    • Cons: Payments don’t start immediately and can be complex with various riders.

Example: Sam, needing immediate income post-retirement, finds the immediate annuity more beneficial. Meanwhile, young Emma, aiming for growth, leans towards a deferred annuity.

Difference Between An Immediate Annuity And A Deferred Annuity

Who Needs Which Annuity and Why?

  • Immediate Annuities are ideal for those seeking an instant, consistent income source, especially post-retirement.
  • Deferred Annuities cater to individuals wanting their wealth to grow, targeting a future income, possibly pre-retirement.

Example: A retired couple, Mark and Sue, could utilize an immediate annuity for instant income. Their daughter, Nina, in her 30s, might prefer a deferred annuity for its growth potential.

Next Steps

The key difference between immediate and deferred annuities lies in the timing of the payout. Immediate annuities are for those needing quick income, while deferred annuities are for long-term growth and future income. Understanding these differences is crucial for effective retirement planning. Contact us today for a free quote.

Deferred Annuity Vs. Immediate Annuity

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Frequently Asked Questions

What is a guaranteed lifetime withdrawal benefit, and how does it work?

A guaranteed lifetime withdrawal benefit is a feature of annuities that provides a guaranteed income stream for life, regardless of market performance. It works by setting a minimum withdrawal amount the investor can receive each year, even if the actual investment returns are lower.

How do immediate and deferred annuities with guaranteed lifetime withdrawal benefits provide income during retirement?

Immediate and deferred annuities with guaranteed lifetime withdrawal benefits provide income during retirement by offering a regular stream of payments for life or a specified period, which can be chosen at the time of purchase. The payments are based on the value of the annuity and other factors, such as the age and gender of the annuitant.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

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

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