What defines a Deferred Annuity?

A deferred annuity is defined as a financial product that allows an individual to accumulate funds over time, with the intention of receiving benefits at a future date. The key characteristic of a deferred annuity is that it does not begin paying out benefits immediately; instead, it postpones these payouts to a specified time in the future. This delay enables the investment to grow, potentially providing a larger payout to the annuitant at the designated time, often retirement.

The structure of a deferred annuity reflects its role as a savings and income vehicle tailored for future financial needs, distinguishing it from immediate annuities, which provide benefits right away. Additionally, the deferred option often includes a cash accumulation component, allowing the invested funds to grow before the payout begins, though this is not the core definition of a deferred annuity.