(Standard Examiner) - Immediate annuities and deferred annuities are two types of financial products that allow individuals to save or begin retirement or other long-term goals. In return, the insurance company agrees to make regular payments to the individual at a later date.
The main difference between immediate and deferred annuities is when the payments begin.
Immediate annuities allow the account holder to start receiving payments as soon as they make the final payment into the account. With an immediate annuity, the account holder makes a single payment or a series of payments, and the insurance company begins making payments to the account holder right away. The payments may be received on a monthly, quarterly or annual basis, and they may continue for a set period of time or for the lifetime of the account holder.
Deferred annuities allow the account holder to make payments over time and then receive payments at a later date, such as during retirement. With a deferred annuity, the account holder makes periodic payments or lump sum payments into the account, and the money grows on a tax-deferred basis. The payments from the annuity may be received on a monthly or annual basis, and they may continue for a set period of time or for the lifetime of the account holder.
There are different types of immediate and deferred annuities, and the specific terms and features of each type will vary. It’s important to carefully review the terms of the annuity contract and understand the potential risks and benefits of each type of annuity before making a decision about which is right for you. It may be helpful to consult with a financial professional for guidance on the differences between immediate and deferred annuities and how they fit into your overall financial plan.
How soon can I withdraw from my annuity savings?
Annuities are financial products that can be used to save for retirement or other long-term financial goals. The terms of an annuity contract determine when and how the account owner can withdraw funds from the annuity.
In general, annuities have a “surrender period” during which the account owner is not allowed to make withdrawals or close the account without incurring surrender charges. The surrender period is typically a number of years, and it is specified in the annuity contract. After the surrender period has ended, the account owner can typically make withdrawals from the annuity without incurring any additional fees.
However, almost all annuities allow for the removal of a percentage of the annuitant’s account value annually. Normally, 10% of the account value can be withdrawn per year. Contracts do vary and it is important to make sure you understand your surrender options in any annuity you are considering.
It is important to note that annuities are designed for long-term saving and may not be suitable for short-term financial needs. Withdrawing funds from an annuity before age 59 1/2 may result in significant tax consequences and may also reduce the overall return on the investment.
There are different types of annuities, and the specific rules for withdrawing funds will vary depending on the type of annuity and the terms of the contract. Some annuities may allow the account holder to make withdrawals at any time, while others may have restrictions on when and how much can be withdrawn.
Some common types of annuities and their rules for withdrawals include:
- Immediate annuities: These annuities typically allow the account holder to start receiving payments as soon as they make the final payment into the account. Withdrawals may not be allowed, or they may be subject to surrender charges or other fees.
- Deferred annuities: These annuities allow the account holder to make payments over time and then receive payments at a later date, such as during retirement. Withdrawals may not be allowed, or they may be subject to surrender charges or other fees, until the annuity has “matured” (reached the point at which payments are scheduled to begin).
- Fixed annuities: These annuities offer a fixed rate of return, and the account holder may be able to make withdrawals, subject to certain restrictions.
- Variable annuities: These annuities allow the account holder to invest in a variety of investment options, and the rate of return can vary depending on the performance of the underlying investments. Withdrawals may be allowed, but they may be subject to surrender charges or other fees.
It’s important to carefully review the terms of your annuity contract before making any withdrawals. You should also consider the potential tax consequences of withdrawals, as well as the potential impact on your financial plan. It may be helpful to consult with a financial professional or a tax advisor for guidance on your specific situation.
By Lyle Boss - Special to the Standard-Examiner
January 11, 2023
Lyle Boss, a native Utahn, is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management.
