Choosing Between Immediate or Deferred Annuity

By Compuquotes Team on April 2nd, 2008

Your annuity investment gives you the flexibility to have your assets that you invest now guarantee a regular income source for you during your retirement years. This sets annuities apart from other investment or retirement vehicles. Annuities allow you to choose simply whether you want the money now or want it later.

If you want the money right here right now, you can choose an immediate annuity. If you want to have your investment accumulate value over a period of time and have that investment plus the value returns be transformed into future income for you, then you can choose a deferred annuity.

  • Immediate annuity

Say you had a windfall and received an early retirement lump-sum amount at middle age. You can buy an immediate annuity and pay it off with your windfall. Then say you give yourself a year's allowance and set the payout date for a year after, the immediate annuity allows for that and lays out your term of coverage and the amount of regular payout. As you set the term, you have a choice of whether you get paid income throughout your lifetime through a life annuity, or you and your spouse both get paid throughout your lifetimes through a joint and survivor annuity. Remember, you set the time and you set the amount. The payout options are entirely up to you.

The considerations, if you want to know, to determine the amount of the monthly income you are bound to get, will be the principal or the amount to buy the annuity, the manner of payout you so wish whether monthly or quarterly or semi-annually, the mode in which you want your annuity to be either variable or fixed, and other personal factors including your age and that of your spouse.

What makes immediate annuities appealing is that they are able to instantly assuage fears of the need to manage an investment portfolio. With immediate annuities, you know immediately how you want to be paid when you want it and with how much. No need for complicated projections or computations, just straightforward allotment for your future.

  • Deferred annuity

On the other hand, a little more patience is required with deferred annuities. A deferred annuity entails you building your savings or investment over time. As the term implies, you defer something, in this case the time when you would want to begin receiving the benefits of your investment. From the time you acquired the annuity to the time the first payout to you begins, the money or principal is placed in fixed or variable account funds.

Where in immediate annuities you buy the plan at lump sum, with deferred annuities you can either pay in lump sum or through installment payments over a period of time, or a combination of both schemes. In deferred annuities, you can still make changes or withdrawals from your money or pre-terminate or reduce the investment amount.

With deferred annuities, your investment's earnings that are supposed to be taxed can be taxed later. Tax is deferred so that earning potential is maximized.

In choosing between immediate and deferred annuity, again the question is: do you want the money now or later?

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