What is a Delayed Annuity?

Many people use annuities to supplement their retirement income. An annuity is a type of investment that allows individuals to make premium payments and then get guaranteed payouts during their retirement years. There are many types of annuities, and ways to invest in annuities. One form of investing with annuities is using the delayed annuity.

Understanding Annuities

Annuities are similar to insurance, you pay premiums, then get a pay out. Many people pay into the company where their annuity is held, and that collective pool of money is what allows the expected annual payouts. Some people will pass away before ever collecting any of the money they invested in their annuity while others will live well beyond the expected age of death and will continue to receive payments. Like with car insurance, many people pay in, but never have an accident or need to make a claim and therefore never get a return on their insurance investment. But, some people will have accidents and will have large claims much higher then what they ever paid for their premiums. It all balances out.

Types of Annuities

There are immediate annuities, delayed annuities, longevity annuities, deferred annuities – multiple choices and options for everyone looking to save more for retirement. With immediate annuities, a large initial investment is made and then small monthly payments can begin right away. With longevity annuities, payments aren’t made until the individual reaches age 85, sort of an “old age” insurance. With deferred annuities the premium payments are made, but the payments don’t start until retirement age, there is no immediate payment. Deferred annuities allow the individual to choose when the payments will begin, perhaps 5 years after premiums have been paid.

The Delayed Annuity

There are benefits to purchasing a delayed annuity, in that interest accrues on the premium that has been paid. So the initial investment earns more money during the time frame between when the premiums have been paid and when the first payment is made to the individual. Most people, when purchasing a delayed annuity, schedule the first payment anywhere from 5 to 20 years down the road.

A delayed annuity is a good option if you have a good retirement portfolio and don’t need to begin using the money right away to supplement retirement income.

Figuring how much interest you can make on the initial investment is a bit tricky. There are websites and excel spread sheets that can help determine the profit margin for you. By typing in the amount of the initial investment, the interest rate, and how many years payment will be delayed, you can find out how much extra you can earn by delaying payments. You can use the spreadsheets to determine how many years you may want to defer and what the best investment option is for you.

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