Deferred annuity is a retirement policy where the depositor or the owner delays or defers payments after investing and starts getting allowances in the future dates. In this case, the annuity gets interest for several years. For an investor who does not want to get income and wishes to delay payments to avoid being taxed on funds, they do not require immediate annuity after their retirement.
Profitable deferred annuities are offered by insurance firms through insurance agents, stock brokers and banks. The investor gives the insurance group either one big premium or if allowed, he or she can make additional premiums.
A deferred annuity starts to make payments at the end of agreed Accumulation Period after retirement, this continues for as long as the beneficiary lives. It protects the policy holders from draining their funds before death, in case they just decided to keep their lump sum money in their bank account. But for those who takes up the policy, even when all of their funds in the agreement exhausted, the insurance firm will still give monthly allowances while as the beneficially is still living.
The time when the owner starts getting funds from the insurance firm is called Payout Period. The investor will be presented with multiple options, for their payout. One may opt for a monthly income as long as he or she lives or a onetime payment like 20 years or 25 years after the retirement, depending on his life expectancy.
Unlike with the case of immediate annuity, where one starts getting monthly earning right away or after one year after making a one lump sum purchase. Deferred annuities policy are not necessarily bought with a lump sum premiums, but can be done monthly, quarterly, or yearly with prior agreement with the insurance company. The investor too can get periodic earnings for life in different patterns, like 10, 15 or 20 years in his or her life.
One is free to withdraw the savings from the deferred annuity before the end of the accumulation period at any time, but comes with some charges. You can also choose to opt out of the plan and close down the account, but this attracts some costs based on the conditions tabulated below.
• If you opt for the plan within the initial years of opening it, you will be will charged surrender cost by the insurance firm.
• You will also be taxed on any interest earned for the period the account was in operation.
• You will also pay 10% additional tax on your savings interest if you take a lump sum payment before attaining the 59.5 years of age.
Deferred annuity is best suited for people:
• Whose currently tax rate is high, but they are expecting it will go down the future. They can avoid paying some tax by saving their many in a deferred annuity, and then withdraw the funds in installments when tax rate is lesser.
• Those that have idle lump sum cash and planning to use it right away and want to accumulate more for departure time.
• Whose income keeps on fluctuating, some years is higher and lower in other years, to avoid future uncertainty.
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