Deferred annuities serve two purposes: tax-advantaged accumulation during your working years, and guaranteed income during retirement. During the accumulation phase, your money grows tax-deferred, meaning you don't pay taxes on gains until you withdraw them.
There are three main types of deferred annuities:
- Deferred Fixed Annuities: Guaranteed interest rate during accumulation
- Deferred Indexed Annuities: Interest linked to market index performance
- Deferred Variable Annuities: Invested in market sub-accounts
The longer you defer taking income, the larger your eventual payments will be. This is because:
1. Your principal has more time to grow
2. Your life expectancy at the time you begin payments is shorter
3. Insurance companies can offer better rates for longer deferrals
For Central Florida residents in their 50s and early 60s, a deferred annuity can be an excellent way to supplement Social Security and any pension income when you reach full retirement.
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