With more people considering how to fund their golden years, annuities have become a popular way to secure a steady income. In 2024, annuity sales reached a staggering $432.4 billion, highlighting their growing importance in retirement strategies. (1) But with various options available, how do you choose between deferred and immediate annuities? Let’s dive into these two popular choices to help you decide about your financial future.
The Basics: Deferred vs Immediate Annuities
Annuities are financial products designed to provide a steady income stream, typically during retirement. The key difference between deferred and immediate annuities lies in when you start receiving payments.
Deferred Annuities: The Long Game
Deferred annuities allow you to accumulate funds over time, with payments beginning at a future date. This option can be particularly appealing if you’re still in the saving phase of your career. Here’s what you need to know:
- Tax-deferred growth potential
- Flexibility in choosing when to start receiving income
- Potential for higher payouts due to a longer accumulation period
- Various investment options, including fixed, variable, and indexed
However, deferred annuities often come with surrender charges if you withdraw funds early, which could impact your overall returns.
Immediate Annuities: Income Now
Immediate annuities, as the name suggests, start paying out almost immediately after you make a lump-sum investment. This option can be ideal for those already in or near retirement. Key features include:
- Guaranteed income stream starting within a year of purchase
- Simplicity in structure and understanding
- Consistent payments
- Options for fixed or variable payouts
The trade-off is that you typically lose access to the lump sum paid, which could be a drawback if you need immediate access to a large amount of cash.
Making the Right Choice
Choosing between deferred and immediate annuities depends on your unique financial situation and goals. Consider these factors:
- Current age and proximity to retirement
- Existing retirement savings and income sources
- Risk tolerance and desire for growth potential
- Need for immediate income versus future income
Resources and Tools
To further your understanding of annuities, consider exploring these resources:
- Online annuity calculators to estimate potential payouts
- Educational webinars offered by financial institutions
- Retirement planning workshops in your community
Final Thoughts
As you contemplate your retirement income strategy, remember that annuities can play a crucial role in providing financial stability. Whether you opt for a deferred annuity to grow your nest egg or an immediate annuity for instant income, the key is to align your choice with your long-term financial goals.
Have you considered how annuities might fit into your retirement plan? Are you clear on which type might best suit your needs? These are important questions to ponder as you chart your financial course.
If you’re looking to dive deeper into the world of annuities and how they can benefit your unique situation, why not schedule a complimentary meeting? Together we can discuss your options and gain clarity on your retirement income strategy.
Source:
(1) “Limra: 2024 Retail Annuity Sales Power to a Record $432.4 Billion.” Limra.com, www.limra.com/en/newsroom/news-releases/2025/limra-2024-retail-annuity-sales-power-to-a-record-%24432.4-billion/
Annuities are long-term insurance contracts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Withdrawals before age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company.
