Written By : Elaine Silvestrini
Edited By : Kim Borwick
Financially Reviewed By : Marguerita M. Cheng, CFP®, CRPC®, RICP®
This page features 8 Cited Research Articles

Annuity.org partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

How to Cite Annuity.org's Article

APA Silvestrini, E. (2022, January 7). Deferred Annuities. Annuity.org. Retrieved January 18, 2022, from https://www.annuity.org/annuities/deferred/

MLA Silvestrini, Elaine. "Deferred Annuities." Annuity.org, 7 Jan 2022, https://www.annuity.org/annuities/deferred/.

Chicago Silvestrini, Elaine. "Deferred Annuities." Annuity.org. Last modified January 7, 2022. https://www.annuity.org/annuities/deferred/.

Why You Can Trust Annuity.org

Annuity.org has been providing reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities and financial literacy topics using plain, straightforward language.

Our Partnerships, Vision and Goals

We partner with Senior Market Sales (SMS), a market leader with over 30 years of experience in the insurance industry, to offer personalized retirement solutions for consumers across the country. Our relationship with SMS (and Insuractive, the company’s consumer-facing branch) allows us to facilitate the sale of annuities and other retirement-oriented financial products to consumers who are looking to purchase a safe, reliable solution to fill gaps in their retirement income. When we produce legitimate inquiries, we get compensated, in turn, making Annuity.org stronger for our audience. Readers are in no way obligated to use our partners’ services to access Annuity.org resources for free.

SMS and Annuity.org share a common goal of educating consumers and helping them select the most appropriate product for their unique financial and lifestyle goals. Our network of advisors will never recommend products that are not right for the consumer nor will Annuity.org. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.

Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.

When you purchase an annuity, if you decide to start receiving payments within a year, you have an immediate annuity. Should you decide to wait to collect or at some point in the future, you have a deferred annuity.

Deferred annuities allow your principal to increase before you begin to receive the stream of payments. Typically, annuities, such as qualified longevity annuity contracts, are bought for future retirement income.

You can also pursue a strategy combining the advantages of immediate and deferred annuities by getting a split-funded annuity.

According to the LIMRA Secure Retirement Institute, deferred annuities are forecast to have the largest growth rates over the coming years.

Pro Tip
Deferred annuities offer short-term solutions to people seeking to protect their savings.
Source: LIMRA
Christopher Magnussen | 0:28 What is a deferred annuity?
What is a deferred annuity? - Featuring Christopher Magnussen
Learn how an investment today can provide guaranteed income for life.
Replay Video
Chris Magnussen, licensed insurance agent at Annuity.org, explains what a deferred annuity is.

Accumulation and Payout Phases

There are two phases to a deferred annuity: The accumulation phase and the payout phase.

During the accumulation phase, you are making payments and your annuity is accumulating interest on a tax-deferred basis. How this accumulation occurs varies depending on the annuity type.

Graphic explaining Deferred Annuity

Fixed Rate

If you have a contract for a fixed annuity, your financial investment will accrue interest at a fixed rate that will not drop below a minimum, guaranteed by the issuing company.

Variable Rate

Variable annuity contracts allow insurers to invest your premiums in mutual funds that comprise stocks, bonds and other short-term money market products called “subaccounts.” Your rate of return depends on the performance of your subaccounts.

Indexed Rate

Indexed annuities are tied to the performance of stock-market measurements, including Standard & Poor’s index of 500 stocks, commonly known as the S&P 500. Your contract guarantees a minimum interest rate — even if the performance of the stock market index declines.

Death Benefits

If you die during the accumulation period, a deferred annuity includes a basic death benefit that pays some or all of the value of the annuity to your beneficiaries.

You don’t pay taxes on those earnings during the accumulation phase. Taxes are not due until you reach the payout phase. This is true for federal income taxes and any applicable state premium taxes.

If you die during the payout phase, your beneficiaries may not receive anything unless you have a specific provision in your annuity contract providing for your beneficiaries to be paid.


How soon are you retiring?


What is your goal for purchasing an annuity?

Select all that apply

Learn About Top Annuity Products & Get a Free Quote

Find out how an annuity can offer you guaranteed monthly income throughout your retirement. Speak with one of our qualified financial professionals today to discover which of our industry-leading annuity products fits into your long-term financial strategy.

Privacy & Contact Agreement

We value privacy. By clicking the button below, you are requesting that an independent insurance agent within our partner network contact you via the email address or phone number you’ve provided to discuss the purchase of an annuity or other insurance product. Independent insurance agents may utilize an autodialer in certain cases. Standard cellular rates apply. This agreement does not require purchase.

Single Premium Deferred Annuity vs. Flexible Premium Deferred Annuity

Deferred annuities are also classified according to how you pay for them. You can make one payment or several. And if you make several payments, they can be structured in different ways.

Single Premium Deferred Annuities

Single premium deferred annuities are purchased with one sum of money in one payment.

Unlike premiums for immediate annuities, which must be paid in one installment, premiums for deferred annuities can be spread over time in a series of payments.

There are advantages and disadvantages with single premium deferred annuities. For example, a single premium deferred annuity might tie up more of your money than you ultimately could afford to put into it, which could wind up costing you a surrender fee.

  • Guaranteed rate of return
  • Principal protection
  • Potential surrender charges
  • Lack of capital for investments (opportunity cost)

Flexible Premium Deferred Annuities

A flexible premium annuity is a type of deferred annuity that is purchased with a series of payments. These payments can be scheduled as specific amounts — what’s known as scheduled premium deferred annuities — or they can change according to your plans or ability to pay.

A deferred annuity that allows you to adjust your payments in this way is known as a flexible premium deferred annuity.

  • Less capital tied up
  • More time to pay for the product best suited to you
  • Rate of return not guaranteed
  • Potential contribution limits

Payout Options

Once an annuitant reaches the distribution phase of their contract, which typically begins when they reach the age of 59 and a half, they can receive payouts from the annuity in one of three ways.

Lump Sum

In a lump-sum disbursement, an annuity is distributed as a one-time, taxable single payment.

Systematic Withdrawal

When funds are dispersed via systematic withdrawal, the annuity can be withdrawn or disbursed through periodic taxable payments. Any remaining money continues to earn interest until the account has been depleted.


Under an annuitization distribution plan, an annuitant receives monthly, quarterly or yearly payments for a designated amount of time, until the annuitant’s death or until the annuitant’s spouse dies.

Interested in Buying a Deferred Annuity?
Learn more about deferred annuities and find out if they're right for you.

Pros and Cons of Deferred Annuities

As with any investment, deferred annuities carry a number of benefits and risks.

Tax-Deferred Investment
Owners do not pay taxes during the accumulation phase. Taxes apply once the distribution phase begins and the owner starts to receive payments.
Guarantees Against Loss
Most deferred annuity contracts have built-in guarantees against loss of principal or offer guaranteed rates of return.
Lifetime Benefits
If you annuitize your contract, insurance companies guarantee lifetime payments for you or your spouse until your deaths.
Death Benefits
Deferred annuity contracts include a death benefit component. This ensures that any surviving heirs receive any remaining assets if you die before the end of the annuity contract.
No Contribution Limits
Unlike with IRAs and 401ks, the IRS places no limits on the principal amount you can contribute to a deferred annuity.
Lack of Liquidity
Annuitants are unable to withdraw any money from their annuity during the contract’s first several years unless they pay a surrender charge for withdrawals. In addition, you’ll pay a penalty to the Internal Revenue Service for any withdrawal you make before you are at least 59 and a half.
High Tax Rates on Earnings
Because annuity contracts grow on a tax-deferred basis, the IRS taxes annuity earnings at the ordinary income rate, which may be higher than the capital gains rate applied stocks, mutual funds and exchange traded funds.
Additional Expenses
Maintaining a deferred annuity contract can be expensive due to administrative fees, funding expenses, charges for special features and riders, and commissions.
Please seek the advice of a qualified professional before making financial decisions.
Last Modified: January 7, 2022

8 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Bloink, R. & Byrnes, W.H. (2017, February 17). Single Premium Deferred Annuities: One Size Does Not Fit All. Retrieved from https://www.thinkadvisor.com/2017/02/17/single-premium-deferred-annuities-one-size-does-no/
  2. Cotton, D. (2017, November 8). Income Annuities: Immediate And Deferred. Retrieved from https://seekingalpha.com/article/4122646-income-annuities-immediate-and-deferred
  3. Financial Web. (n.d.) Immediate and Deferred Annuities. Retrieved from https://www.finweb.com/insurance/immediate-and-deferred-annuities.html
  4. LIMRA. (2018, June 7). LIMRA Secure Retirement Institute Forecasts Total Annuity Sales to Improve Through 2019. Retrieved from https://www.limra.com/en/newsroom/industry-trends/2018/limra-secure-retirement-institute-forecasts-total-annuity-sales-to-improve-through-2019/
  5. National Association of Insurance Commissioners. (2013). Buyer’s Guide to: Fixed Deferred Annuities. Retrieved from https://www.nj.gov/dobi/division_insurance/pdfs/naicdeferredannuities.pdf
  6. National Association of Insurance Commissioners. (n.d.). 10 Things You Should Know About Buying Fixed Deferred Annuities. Retrieved from https://www.doi.sc.gov/598/Buying-Fixed-Deferred-Annuities
  7. U.S. Securities and Exchange Commission. (n.d.). Deferred Annuity. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/glossary/deferred-annuity
  8. Woman’s Life Insurance Society. (n.d.). Fixed Deferred Annuities. Retrieved from https://www.womanslife.org/annuities/