Immediate vs. Deferred Annuities: Understanding the Key Differences

Both the immediate annuity and deferred annuity provide unique benefits when planning for your retirement. Here are the basics of the immediate annuity and deferred annuity and how they differ from one another.

Immediate Annuity

An immediate annuity is a contract that is made between you and an insurance company. You will pay the insurance company a certain amount of money for the annuity. The annuity will then immediately begin to send you monthly annuity payments. These payments might last for the rest of your life or they could last for a predetermined amount of time.

Deferred Annuity

Another type of annuity is the deferred annuity. This type of annuity is a contract between you and an insurance company that you make for an extended period of time. With this type of annuity, you are going to purchase it and defer the annuity payments for a certain amount time. You could pay for the annuity in a lump sum or you could make small, periodic payments. Many individuals choose to use a deferred annuity so that they can pay for it over the course of their working life. Then, whenever they reach the age of retirement, they will begin to receive annuity payments.