What is the primary distinction between immediate and deferred annuities?

Immediate annuities are designed to begin making payments to the annuitant almost immediately after the purchase, typically within a year. This feature makes them an appealing option for individuals looking for a reliable source of income shortly after their investment. The immediate nature of these payments allows individuals to meet their short-term financial needs, such as living expenses or retirement income.

In contrast, deferred annuities are structured to delay payments until a future date, which is often chosen by the investor. This delay can provide a longer accumulation phase for the invested funds to grow, usually beneficial for those planning for retirement or seeking to build their savings over time before accessing the funds.

Understanding this key distinction helps to clarify the purposes and uses of each type of annuity in financial planning. Immediate annuities cater to a need for current income, whereas deferred annuities focus on future financial goals and growth accumulation. Thus, when considering an appropriate annuity product, it is important to match the timing of payments with the individual’s financial situation and goals.