Immediate vs Deferred Annuity
Both turn money into income, but on opposite schedules. The right one depends entirely on whether you need the paycheck now or are buying future income at a discount.
Immediate annuities start paying within 12 months and suit new retirees wanting income now. Deferred annuities compound for years before paying, suiting pre-retirees who want bigger future checks. Deferral is powerful: each waiting year raises the eventual payout.
Immediate annuities: income now
Hand over the lump sum and checks start within a month to a year. A 65-year-old putting $250,000 into an immediate fixed annuity might receive around $1,400 to $1,600 a month for life, priced from current rates and mortality tables.
Best for: recent retirees converting savings into a paycheck, pension-less households wanting a floor under spending, and anyone who values simplicity over optimization. The tradeoff is locking in today's rates.
Deferred annuities: income later
Money compounds tax-deferred during the waiting years, then converts to payouts. A 55-year-old deferring 10 years at 5 percent turns $250,000 into about $407,000 of payout principal, buying a much larger check at 65 than an immediate purchase today.
Deferred income annuities (sometimes called longevity annuities) can start as late as 80 or 85, paying handsomely because many buyers will not collect long. They are cheap longevity insurance for the tail risk of a very long life.
How to choose
Need income within a year to cover spending? Immediate. Still working with a decade to retirement? Deferred. The calculator on this page models deferral directly: set deferral years above zero and watch the monthly payout climb.
You can also ladder: buy a small immediate annuity for near-term income and a deferred one for later years. Staggering purchases across years diversifies the interest-rate risk of any single purchase date.
Skip the arithmetic
Compare immediate vs deferred payouts with the free annuity calculator.
Immediate vs deferred questions
Can you lose money in a deferred annuity?
Fixed deferred annuities guarantee the accumulation value minus any surrender charges. Variable versions invest in subaccounts that can fall. Indexed versions protect principal but cap gains. Match the type to your risk tolerance, not the sales pitch.
When should I buy a deferred annuity?
Buying at 55 with payouts at 70 gives 15 years of compounding plus favorable mortality pricing. Buying at 75 to defer to 80 gains little. The sweet spot is far enough out for compounding to work, near enough that your plans are concrete.