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Two Main Annuity Types: Immediate and DeferredThe difference between deferred and immediate annuities is just about what you'd think.
With
an immediate annuity, your income payments start right away
(technically, anytime within 12 months of purchase). You choose
whether you want income guaranteed for a specific number of
years or for your lifetime. The insurance company calculates
the amount of each income payment based on your purchase amount
and your life expectancy.
A deferred annuity has two phases: the accumulation phase, where you let your money grow for a while, and the payout phase. During accumulation, your money grows tax-deferred until you take it out, either as a lump sum or as a series of payments. You decide when to take income from your annuity and therefore, when to pay the taxes. Gaining increased control over your taxes is one of the key benefits of annuities. The
payout phase begins when you decide to take income from your annuity.
For most people, this is during retirement. As your needs dictate,
you can take partial withdrawals, completely cash-out (surrender)
your annuity, or convert your deferred annuity into a stream of
income payments (annuitization). This last option is essentially
the same as buying an immediate annuity. For a more detailed discussion of immediate and deferred annuities, please select from the following buttons:
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