Deferred Annuities
Deferred annuities allow annuitants to delay their income disbursement payments. Delaying the annuitization phase allows annuity owners to contribute more to their investment over time.
How Do Deferred Annuities Work?
Deferred annuities do not disburse income payments immediately. When you buy a deferred annuity, either through a single-premium payment or periodic payments, income savings are disbursed at a later date.
Deferred annuities are designed to supply annuitants with lifetime payments, or to carry over through a spouse's lifetime after an annuitant's death. They may be ideal investments for younger people or couples far off from retirement.
Deferred annuity contracts provide more control than an immediate annuity over the money invested. Deferred annuity owners can choose to receive periodic withdrawals, the entire investment as a one-time lump sum, or transfer all assets to another account.
Key Features:
- Tax-deferred growth until withdrawal
- Option to include a death benefit rider
- Flexible contribution options
- Beneficiary protection for remaining assets
- Compound interest earnings over time
Fixed vs. Variable Deferred Annuities
There are two main types of deferred annuities. While both options guarantee an income payout, the amount disbursed may differ depending on interest accrued over time.
Fixed Deferred Annuity
A fixed deferred annuity guarantees the monthly, quarterly or yearly payments an annuity owner receives is consistent. During the accumulation phase, a fixed deferred annuity earns interest at a set rate of return. Consistent income payments are then disbursed and do not fluctuate every pay period.
Variable Deferred Annuity
Variable deferred annuity premium payments are invested into sub-accounts, and may accrue interest based on the performance of the financial market. This option carries a level of financial risk because funds are invested in stocks or mutual fund sub-accounts, causing the disbursement amount to fluctuate per pay period.
Deferred Annuity Pros and Cons
When choosing to invest in an annuity, it's important to weigh the benefits against the risks to ensure you receive the most value for your investment.
Pros
Guaranteed Payout
Deferred annuities guarantee an additional income stream over the course of the annuity contract or until the annuitant's death. This annuity option also offers a death benefit component.
Tax-Deferral
Deferred annuities experience growth tax-free. Any interest accrued over time is not taxed until investment savings are disbursed.
Growth Potential
Variable deferred annuities are invested in sub-accounts. All the interest accrued depends on the success of the financial market, providing ample growth potential.
Cons
Risk of Loss
Variable deferred annuities carry a level of risk. Investing in the financial market may offer long-term pay increases, but annuitants risk losing a portion of their interest if sub-accounts perform poorly.
Surrender Charges
If annuitants choose to break their contracts prior to the end of their term, they will be charged surrender fees. It can be more expensive to break a contract early than to continue with the initial terms.
Selling Your Deferred Annuity
Though investing in a deferred annuity can be a profitable decision, it is also a long-term one and doesn't account for change in circumstance over time. In the face of debt, college tuition or emergency home renovations, selling some or all of your deferred annuity for cash may be the most beneficial scenario for you.
If you feel owning a deferred annuity is no longer the right decision, let CBC Settlement Funding help you. With an A+ rating from the Better Business Bureau and ample experience in the financial industry, CBC Settlement Funding is qualified to help you sell some or all of your annuity.
Learn About Selling Your AnnuityLet CBC Help
Our team of experienced, caring professionals will make the process of selling some or all of your structured settlement or annuity payments easy.