Immediate vs Deferred Annuities — Which Do You Need?

What Is an Immediate Annuity?

An immediate annuity (also called a Single Premium Immediate Annuity or SPIA) converts a lump sum into an income stream that begins within 30 days to 12 months of purchase. You give the insurance company a lump sum, and they pay you a guaranteed monthly income for life or for a set period. Immediate annuities are ideal for people who are already retired and need income now.

• Income begins immediately (within 1–12 months)
• Converts a lump sum to guaranteed monthly income
• Income can be for life or a set period
• Payments are predictable and guaranteed
• Best for people who need income now

What Is a Deferred Annuity?

A deferred annuity has two phases: an accumulation phase where your money grows tax-deferred, and an income phase where you convert the accumulated value to income. The accumulation phase can last for years or decades. Deferred annuities are ideal for people who are still working or saving for retirement and want to grow their money before converting it to income.

• Accumulation phase: money grows tax-deferred
• Income phase: convert to guaranteed income when ready
• More flexibility than immediate annuities
• Can be fixed, indexed, or variable
• Best for people still saving for retirement

Deferred Income Annuities (DIAs) — Longevity Insurance

A deferred income annuity (DIA) — sometimes called longevity insurance — is a hybrid product. You purchase it now but defer income to a future date, often age 80 or 85. The long deferral period results in very high monthly income payments when they begin. DIAs are used to protect against the risk of outliving your savings in very old age.

Which Is Right for You?

If you are already retired and need income now, an immediate annuity may be the right choice. If you are still working or have other income sources that cover your current needs, a deferred annuity allows your money to grow before you need it. Many retirees use a combination: a deferred annuity for long-term growth and an immediate annuity or systematic withdrawal for current income.

Income Options for Annuities

When you annuitize (convert to income), you choose from several payout options:

• Life only: highest monthly payment, stops at death
• Life with period certain: payments guaranteed for a minimum period (e.g., 10 years) even if you die early
• Joint and survivor: continues to pay your spouse after your death
• Period certain only: payments for a set number of years regardless of whether you are alive