Beyond how an annuity credits growth (fixed, indexed, or variable), annuities are also categorized by timing, specifically when income payments begin. This is where “immediate” and “deferred” come in.

Immediate annuities

With an immediate annuity, you pay a lump sum and income payments typically begin within about a year, often within a month. This structure is generally chosen by people who are ready to convert savings into income right away, commonly around or after retirement.

Deferred annuities

A deferred annuity has two phases: an accumulation phase, where your money grows (through a fixed rate, index-linked interest, or investment sub-accounts, depending on the type), and a later income phase, when you choose to start taking withdrawals or convert the contract into income. This structure suits people who are saving ahead of a future need, such as someone in their 50s planning for income starting at 65 or later.

Why the distinction matters

An immediate annuity generally offers less flexibility once purchased, since you’re committing directly to an income stream up front. A deferred annuity offers more time to change your mind about how and when to take income, potentially benefiting from additional growth or an income rider along the way, but it also means waiting longer before income actually begins.

Which structure fits depends mostly on one question: do you need income now, or are you building toward income later? That answer usually points clearly toward one category or the other.

This article is educational and general in nature. It isn’t personalized financial advice. All guarantees are subject to the claims-paying ability of the issuing insurance company.