Deferred annuities are when you deposit funds with an annuity company and the taxes on any of your investment gains are deferred until withdrawal. Written into the annuity contract will be the option to turn deferred annuities into immediate annuities after a certain amount of time. This option will allow your earnings to defer until you choose to turn your investment into a guaranteed stream of income.
There are many different types of annuities:
- Fixed Deferred Annuity
Works like a certificate of deposit but the interest will be deferred until withdrawal. With fixed deferred annuities, a guaranteed interest rate will be earned.
- Variable Deferred Annuity
Investing in variable deferred annuities is like owning a group of mutual funds. You control the investment risk by choosing from a pre-selected list of sub-accounts. Invest returns will vary depending on performance of the sub-accounts.
- Equity Indexed Annuity
Equity indexed annuities have to two components: minimum guaranteed return and the possibility of earning a higher return. The possibility of earning a higher return is credited to the account with a return based on a formula that is tied to the stock market index.
- Longevity Annuity
Longevity annuities are like purchasing long life expectancy insurance. Insurance companies will guarantee to provide you with a specified amount when you turn a certain age, allowing you to spend your other assets, knowing you had a guaranteed income.