Deferred annuities are investments made with insurance companies that will guarantee you a regular income in future. They work by paying a premium lump sum or several payments in the initial stage and waiting for a predetermined period to pass before payouts begin. The larger the amount of money you can pay as principal and the longer you can defer till the payouts begin, the larger an income you can look forward to. This kind of investment is very good for retirees who expect their living expenses to rise at some point in the future. They can take a portion of their retirement savings and put into this kind of annuity.
The investment is considered among the safest and most rewarding in the long term. The rate of return is often pegged against long term bonds. The income that is derived from your annuity is not only insured by the insurance company, but also to some extent by the government. This adds to the level of protection of your investment. Another benefit is that you get to defer paying taxes on your earnings until payouts begin. Naturally the longer you defer, the more earnings you retain that will accrue further as the years pile on.
Unfortunately this benefit can be cancelled if tax rates on your investments are raised in future when you begin to withdraw money from your annuity. Another downside that typically affects all kinds of annuities is the issue of surrender charges. If an emergency arises and you decide to make an early withdrawal, you will have to contend with hefty charges being imposed by the insurance company. If the annuity is also a longevity annuity, and you pass on and no arrangements have been made to cover your spouse, then the value of the annuity reverts to the insurer. It is not an inheritable asset you can leave to beneficiaries.
For more information please visit us at deferred annuities.