What is a deferred annuity?

A deferred annuity is designed to accumulate value over a period before any payouts are made to the investor. This type of annuity allows individuals to invest their money and grow it tax-deferred until they are ready to start receiving income, which can be advantageous for long-term financial planning. The accumulation phase can last for several years, during which the investment can grow due to contributions and interest or investment returns, depending on the type of deferred annuity.

Once the individual decides to start receiving income, this can begin at a specified future date, which is essential for individuals who may not need immediate funds but are looking toward their retirement or specific financial goals. This characteristic distinguishes deferred annuities from immediate annuities, which start providing income right after purchase.

The other options highlight features that do not align with the foundational concept of a deferred annuity. For instance, an annuity that pays income right after investment refers to an immediate annuity, while options discussing cancellation and fixed payments for life pertain to different types of contracts that are not inherently defining features of a deferred annuity.