What is a Deferred Annuity : Features & Benefits for Retirement

KeyTakeaways
 

• A deferred annuity helps you plan for a steady income after retirement.
   
• You can decide when to get paid.
   
• Your money will grow and you do not have to pay tax until you will not use it.

A deferred annuity is a life insurance plan that helps you build a retirement fund and receive a fixed income from a future date that you choose. It allows you to save during your working years and enjoy financial security in retirement.

Take the example of Ravi, a 35-year-old software developer who dreams of opening a book café and travelling after retirement. To achieve this, he invests in a deferred annuity plan. Over the next 25 years, he regularly contributes a portion of his income. When he turns 60, the plan starts paying him a fixed monthly amount. This income supports his goals without depending on anyone else.

Such plans not only help you stay financially independent after retirement but also allow you to live the life you've always imagined. With careful planning, just like Ravi, you can turn your retirement dreams into reality.

In this blog, we will delve deeper into the concept of a deferred annuity and how it works.

How Does a Deferred Annuity Work?

A deferred annuity gives you regular income after retirement. You invest during your working years, and from a future date you choose, the plan begins paying you a fixed income for life.

Two Ways to Pay
 

• In a regular pay plan, you pay premiums over several years. After a set deferment period, your income begins.
   
• In a single pay plan, you make a one-time payment. Your income then starts after the deferment period.

Flexible Payment Options

You may invest monthly, half-yearly, yearly, or all at once, whichever suits your lifestyle. The income you’ll receive is fixed at the start so that it won’t change with market ups and downs. This provides stability and enables you to plan with confidence.

Customise Your Plan

You can tailor the plan to your needs. You may:

• Include your spouse or loved ones
• Choose to get your premiums back at the end

This flexibility ensures your retirement plan works just the way you want it to.

Why Choose a Deferred Annuity?

A deferred annuity helps you enjoy your retirement without money worries. Here’s how it works for you:
 

BONUS TIP:- Maximum deduction of up to 1,50,000every year from the individual’s total income under Section 80C of the Income Tax Act.

With these simple yet powerful benefits, a deferred annuity helps you enjoy your retirement years with confidence, comfort, and financial freedom.

Read More – Indian Pension Managers Request to Relax Bond Investment Guidelines

Different Types of Deferred Annuities

Deferred annuities come in various forms to suit your goals and comfort with risk. Here's a simple guide:
 

Each type of deferred annuity offers something different, so by choosing the one that suits your needs and comfort level, you can secure a retirement plan that works best for your future.

Why Can a Deferred Annuity Be a Good Choice?

A deferred annuity helps your money grow over time, and you can pay less tax later. Here are some simple reasons why many people like it:
 

• Deferred annuities can offer better long-term returns, especially if linked to market performance.
   
• While FDs and PPFs are safer, they may not keep up with inflation or provide sufficient retirement income.
   
• Annuities allow compounding to work uninterrupted over the years.

With these advantages, a deferred annuity gives you the freedom to grow your savings, plan your income, and stay prepared for both your future goals and unexpected needs.

Things to Keep in Mind Before Choosing a Deferred Annuity

While deferred annuities offer many benefits, it's important to understand the downsides so you can make the right choice for your future:
 

So, while a deferred annuity can help you plan for the future, it’s important to understand these limitations before investing, so you’re fully prepared and avoid surprises later.

Who Should Consider a Deferred Annuity?

A deferred annuity may not suit everyone, but it offers a valuable solution for those aiming to secure a reliable income in retirement. It is especially beneficial for individuals aged between their late 40s and 60s who seek guaranteed post-retirement income to ensure financial stability. It also serves well for freelancers and self-employed persons, functioning as a personalised pension alternative.

For those with a higher risk tolerance, variable or indexed deferred annuities provide market-linked returns, offering potential for greater growth alongside increased volatility. Additionally, deferred annuities can offer tax advantages, as premiums paid may be deductible under Section 80C of the Income Tax Act, thereby reducing taxable income while promoting disciplined savings.

Lastly, if you prefer fixed returns and capital protection over market risks, then fixed or indexed annuities will suit you best.

Also Read - How to Build a ₹1 Crore Retirement Corpus by Investing in 2025

Bonus Tip:-If you're a freelancer or self-employed, a deferred annuity can work like a personal pension plan, helping you build a regular income stream in retirement.

Conclusion

A deferred annuity is a smart way to plan for retirement. It helps you grow your money safely over time and provides a regular income later in life. With tax benefits, flexible options, and guaranteed payouts, it suits many people who want peace of mind and steady financial support in their golden years.

FAQ’s

1. Can I use a deferred annuity to create my own pension?
Yes it works like a personalised pension, letting you control contributions, payout timing, and features like lifetime income or inflation protection.

2. Is a medical test needed to buy a deferred annuity?
Most deferred annuity plans don’t require a medical test, especially if bought early or for income-only benefits.

3. Can I lose money in a deferred annuity?

It depends on the type. Fixed annuities protect your capital, while variable or indexed annuities carry market risk but offer higher growth potential.

4. What happens if I outlive the annuity period?
If you’ve chosen lifetime income, payments continue. If not, income stops unless you select a return or joint-life option.

5. Can I change the deferment period later?
Usually, you must fix the deferment period when buying the plan. Some flexible plans may allow changes, but not all do.
 

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