Delayed Annuity

Demystifying Delayed Annuities: Understanding How They Work and Their Benefits

Delayed annuities, also known as deferred annuities, offer individuals a reliable stream of cash payments after an initial deferral period. Let's delve into the workings of delayed annuities, their types, and special considerations for investors.

Understanding Delayed Annuities

Delayed annuities function by accumulating funds during the accumulation phase and distributing benefits during the distribution phase. Unlike immediate annuities, which commence payments right away, delayed annuities provide flexibility in terms of premium payments and withdrawals.

Types of Delayed Annuities

• Fixed Delayed Annuity: Similar to a certificate of deposit, this annuity guarantees a specified interest rate.
• Variable Delayed Annuity: Offers investment options tied to market performance, akin to mutual funds.
• Longevity Annuity: Begins payments later in life, serving as insurance against outliving other retirement assets.

Special Considerations

Recent legislative changes, such as the SECURE Act, impact the distribution of retirement account funds, including annuities. Non-spousal beneficiaries inheriting IRA accounts must now withdraw funds within 10 years of the owner's death, affecting annuity payouts.

Example of a Delayed Annuity

For instance, if an individual funds an annuity with premium payments and receives deferred payments after a specified period, it's classified as a delayed annuity. Calculating the net present value of these payments involves discounting future payments to their present value.