The Power of the Deferred Annuity

Originally, annuities were used as a source of personally providing a guaranteed income. Today most people who buy an annuity never plan on “annuitizing” their contract, but intend on maintaining their annuity in a “deferred” status. With most deferred annuities, there is not a requirement to ever annuitize the contract. If the owner needs access to some of their funds, they may do so with a contractual provision to make periodic withdrawals. Some companies even provide the convenience of checkbook access for this benefit. Up to a contractually specified amount, withdrawals are without cost or penalty. Surrender charges only apply during a stated surrender period of the contract, and then only on amounts withdrawn in excess of the “free withdrawal” amount. If an owner utilizes the free withdrawal privileges of a deferred annuity, usually in the range of up to 10% per year, they can enjoy significant flexibility and control in the management of their money to provide regular retirement income, or money set aside for special or emergency uses. Deferred annuity contracts are usually structured to earn significantly higher returns than most guaranteed bank products. Unlike an annuitized contract, that ends upon the death of the owner, or after a limited fixed period of time, in a deferred contract, the entire unused account balance remaining at the death of the owner is easily and quickly passed on to the named beneficiaries, without passing through probate.