What Is Deferred Annuity? Definition

Why it matters

Deferred annuities are used to build savings for retirement. They can be fixed, indexed, or variable. During the accumulation phase, the owner can add money, depending on the contract. Later, the owner can take lump sums, take withdrawals, or annuitize for income. Early withdrawals often face surrender charges, and taxes and penalties may apply before age 59 and a half. Rules, fees, and free withdrawal rights vary by carrier and contract.

Source: investor.gov

Related terms

Annuity: An annuity is a contract with an insurance company in which you pay a lump sum or a series of payments. In return, the insurer agrees to make payments to you, either right away or at a future date.
Accumulation Phase: The accumulation phase is the period in a deferred annuity when the owner adds money and the value grows, before income payments begin. It ends when the owner takes withdrawals or starts annuity payments.
Annuitization: Annuitization is the process of converting an annuity's value into a stream of regular income payments. Payments may last for life or for a set number of years, depending on the option chosen.
Surrender Charge: A surrender charge is a fee an insurer charges if you withdraw more than the allowed amount from an annuity, or cancel the contract, during the surrender period. It is usually a percentage that declines each year.
Single Premium Immediate Annuity (SPIA): A single premium immediate annuity (SPIA) is an annuity bought with one lump sum that begins paying income right away, usually within a year. Payments can last for life or for a set period.

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Why it matters

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