If you decide an
annuity
is right for you, the
easiest decision is likely to be whether you should purchase a
deferred
or
immediate
contract.
If you’re interested in accumulating retirement
savings, you may purchase a deferred annuity. You can make a one-time
lump sum payment known as a single premium. This option often
appeals to people who receive a large bonus, an inheritance, or
insurance settlement.
Or, if you want to build retirement savings over
time, perhaps earmarking part of every paycheck for that purpose,
you can choose a flexible premium that requires smaller payments,
either on a regular schedule or whenever you have extra cash.
Some annuities offer modified single premium payment plans, which
allow you to combine a large initial investment with smaller payments
later in the life of the contract.
In contrast, if you’re ready to retire and
want to initiate a stream of income, you may choose an immediate
annuity. You’ll begin to receive income soon after your
lump-sum purchase. For example, you may use your retirement plan
payout to purchase an annuity in order to receive income for the
rest of your life.
While you'll most likely buy an annuity in your
own name, you may also buy either a deferred or immediate annuity
to benefit someone else, such as a special-needs child or an elderly
relative.
