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Annuity
What is an Annuity?


• An annuity is a financial instrument that provides fixed payments over a specified period of time. An annuity provides a distribution of finances, earned on an investment in a fixed schedule; the payments are allocated to the holder of the annuity in quarterly, monthly, biannually or annually installments.
• An annuity is typically used as part of a retirement plan; the instrument is a fixed-income investment that ensures stable income once the holder stops working. The most common form of an annuity is a pension fund; while the retiree was working, the individual paid a portion of his or her salary into a pension fund, which is invested. Once the holder retires, the return on the investment takes the form of an annuity and is disbursed periodically to the individual.

What is a Deferred Annuity?
• A deferred annuity is a type of annuity that withholds the money invested by the policy holder until the individual turns 59.5. The money is then offered periodically to the individual as a form of retirement savings. 
• A deferred annuity consists of two distinct phases: the accumulation phase and the distribution phase. During the accumulation phase, the annuity holder offers regular payments to the insurance company. These payments are then gathered and invested to accumulate interest. The investments of the deferred annuity receive credited interest based on the terms expressed in the contract. 
• A deferred annuity offers limited liquidity during the accumulation phase; typically 10% per year may be withdrawn (after the holder reaches 59.5) from a deferred annuity account without incurring a penalty. A withdrawal made before the age of 59.5 will incur a 10% tax penalty instituted by the Internal Revenue Service and levied by the underlying insurance company. 
• The accumulation phase refers to the gradual saving for retirement via regular payments. As oppose to offering one lump sum, the accumulation phase enables the holder to take advantage of the insurance company’s tax deferred offering to shelter investment gains until distribution. 
• That being said, when the accumulation phase ends, the distribution phase begins. In a deferred annuity, the distribution phase requires the insurance company to dispense any accumulated proceeds—according to the plan stipulated in the annuity contract—into the holder’s account. The rate of payments and the amount offered by the deferred annuity is subject to the type chosen.
Types of Deferred Annuity Plans:
 Fixed Deferred Annuity: This type of deferred annuity offers a fixed rate of return for a period specified in the annuity contract. A fixed deferred annuity will also be attached with a death-benefit provision, which will transfer funds to a spouse or loved one following the holder’s death.
• Variable Deferred Annuity: Unlike a fixed deferred annuity, the investments in a variable deferred annuity are selected by the holder (rather than the insurance company) and as a result, are attached with variable or fluctuating interest returns. 
• Index Deferred Annuity: The credited interest return gathered during an index deferred annuity’s accumulation period is tied to an index of economic performance, such as the Standard & Poor’s. 
• CD Deferred Annuity: A CD Deferred annuity, similar to a commercial deposit, provides a holder with credited interest rates with guaranteed pay period equal to the investment term and duration of stipulations expressed in the contract. A CD annuity may also be offered as a fixed annuity with limited liquidity, surrender charges and death benefits. A CD deferred annuity will last from 1 to 10 years.

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