Why Deferred Annuities Are The Retirement Secret Most Investors Miss

A deferred annuity simply means the money paid into an annuity waits there, until the investor decides to start the payments. The annuity can be paid in a lump sum or a series of payments. These are a good idea if you have used other retirement accounts to the max. Like other annuities, there’s a range of deferred annuities to choose from. There’s usually a minimum payment requirement of somewhere around $10,000.

Benefits

One benefit is that tax is deferred, only being applied when withdrawals start being made. Deferred annuities can also have a ‘death benefit’ which means the investor’s beneficiary gets the remaining principal and the earnings.

Variable annuity

This allows you to invest as you like and you will typically be offered a range of investment portfolios to choose from. It does mean you need to pay attention and manage your own money. These kind of deferred annuities are similar to mutual funds.

Fixed annuity

These have a fixed rate of interest and a time period of between three to ten years. You can’t touch the money during that time unless you’re prepared to pay surrender fees. Fixed deferred annuities are similar to CDs, so it may be worth checking both.

Longevity and equity-indexed annuities are also available. Longevity means you get to have an income stream in later life, and equity-indexed means you invest both in a minimum guaranteed return (like a fixed annuity) and in a fund that follows a popular stock market index. This can be a good way to ‘hedge your bets,’ though it can get complicated also.