Deferred Annuity

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Definition of 'Deferred Annuity'

A deferred annuity is a contract between an insurance company and an individual in which the individual agrees to make regular payments to the insurance company over a period of time, usually 10 years or more. In return, the insurance company agrees to pay the individual a regular income for life, beginning at some future date, such as retirement.

There are two main types of deferred annuities: fixed and variable. With a fixed annuity, the insurance company guarantees a specific rate of return on the individual's investment. With a variable annuity, the individual's investment is invested in a portfolio of stocks, bonds, and other investments, and the rate of return depends on the performance of those investments.

Deferred annuities can be a good way to save for retirement or other long-term goals. They offer a number of advantages over other retirement savings vehicles, such as savings accounts and CDs. For example, deferred annuities offer tax-deferred growth, which means that the individual does not have to pay taxes on the earnings until they start taking withdrawals. Deferred annuities also offer protection from creditors, which means that creditors cannot seize the individual's annuity assets to satisfy a debt.

However, deferred annuities also have some disadvantages. For example, they typically have high fees, and the individual may not be able to access their money without incurring surrender charges. Additionally, the rate of return on a deferred annuity is not guaranteed, and the individual may end up with a lower return than they expected.

Before investing in a deferred annuity, it is important to carefully consider the pros and cons to make sure that it is the right investment for you.

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