What is the difference between immediate and deferred annuities?

Before you purchase an immediate or deferred annuity, it’s helpful to understand the differences between them and how they may align with your needs. Both types of annuities can be paid for in one lump sum or in multiple payments, although immediate annuities are more commonly funded with a large single payment.

Are immediate annuities a lump sum or a deferred annuity?

Immediate annuities are generally purchased with a single, lump sum deposit. Because of this funding method, this style of annuity is commonly referred to as a single premium immediate annuity ( SPIA). Deferred annuities may also be purchased with a lump sum, though you can fund them incrementally over the years you have before you retire as well.

How are deferred annuities classified?

Deferred annuities are typically classified based on returns, term, and funding style. Interest rates are credited based on the type of annuity you select. The three types are: The type of annuity you select should be driven by your investment objectives and risk tolerance. A fixed-deferred annuity may be the safest option.