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Single Premium Deferred Annuity: Benefits in Waiting

Individuals seeking to have an income beyond their retirement look to annuities for the answer. An annuity is a contract between an individual and an annuity provider. The individual makes a lump sum payment to the provider, which in turn provides an income stream of payments to the buyer regularly, over a specific amount of time. This is what attracts retirees or soon-to-be retirees to annuities.

One of the most basic and also among the earliest types of annuities, together with the immediate annuity, is the single premium deferred annuity. It is a kind of annuity where the holder makes a regular payment to the company to initially be invested during what is known as the accumulation period. When this period ends, then the company will provide income to the holder for the duration of his lifetime.

The first of two prominent features of the single premium deferred annuity is the single payment scheme. To make this is possible; an individual must be equipped with enough resources to make the payment. People nearing or already at the threshold of retirement are usually the ones whose funds are deep and flexible enough to afford the single premium payment.

The second feature of the single premium deferred annuity is deferral. In the case of annuities, this is quite common as it benefits all parties involved in the contract. First, the funds are invested and given room for growth, and then, in the meantime, the holder reaches retirement age and is ready to benefit. Since it is geared towards after retirement income, the length of time spent being deferred allows the funds to increase growth.

A single premium deferred annuity can be either indexed or fixed. A fixed annuity grows at a fixed rate, the indexed product at a rate tied to the market. As buyers of annuities want the security afforded by continued income, the fixed annuity has an attractive guarantee.

In terms of further benefits from single a premium deferred annuity, there is its tax benefit. It is an excellent way of getting tax-deferred growth of funds, with taxation being delayed until the holder’s retirement and starts receiving the income. In this view, the single premium deferred annuity can be seen as a pension plan.

By loose definition, a single premium deferred annuity allows any individual to immediately make an investment for the future through benefits in waiting. It is one of the more sound ways to invest given that it does have that tax-deferred growth. It does cater to people who can afford to wait a while before enjoying its benefits, and therefore might not be for everyone, but is still one of the preferred annuities.

Annuities are all designed for benefit, but there are indeed differences between each one that buyers need to know about. Those planning on buying one need to help themselves by being informed and updated about the different types of annuities. There are many tools that can help, like lists, definitions, and calculators.

Single Premium Deferred Annuity