Fixed Annuity - What Is the Difference Between Deferred and Immediate Annuity?

If you are in the market for financial investments that will make your retirement secure and comfortable, you may have come across fixed annuity as one of those investment options. Buying a fixed annuity can indeed give you something solid to rely on as you live through your golden years without a lot of fuss and bother about money.

Fixed annuity plans have attracted a lot of people who are looking for stable retirement plans ever since it was first introduced in the insurance market. The beauty of this form of annuity is that no matter how bad the economy is or how unreliable market movements may be, the payments will remain the same. With a fixed annuity, you can count on getting the same amount of money every pay period regardless of current economic conditions.

Not All Annuities Are the Same

If you are thinking of buying a fixed annuity, you should know beforehand that not all such annuities are the same. There are actually two basic types of fixed annuities: the deferred type and the immediate type.

When you get a deferred annuity, you pay the premiums for this annuity within a designated period of time, usually until you reach your retirement age. Once this designated period is up, you can start withdrawing or getting payments from your plan. Taxation is also deferred on the investment until you start withdrawing from it, which means your investment can grow even more until it has matured.

An immediate annuity plan, on the other hand, requires you to pay a single lump sum for purchasing the annuity. Once the money has passed hands and the contract has been signed, you can then begin benefiting from your investment on the next payment cycle.

It All Depends on Your Needs

So which is better, the deferred type or the immediate type? Truth be told, it all depends on what you need for your retirement. Both types of annuities have their own advantages and disadvantages, and it is up to you to find out which one suits you most.

One thing you must do before you buy a fixed annuity, though, is to ensure that you are purchasing your plan from a highly rated insurance company. An insurance company with a high rank in ratings agencies like Moody's and AM Best are likely to stand with you for the long haul. They are not likely to leave you high and dry when the economy forces them to close doors. It won't be unheard of for lower-rated insurance companies to lure you with higher rates, but this would be too risky and you shouldn't bite the bait. You will not want to jeopardize your future with mistakes in buying your fixed annuity.

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