Deferred Annuity Calculator
Calculate the growth and future payouts from deferred annuities. These annuities allow your money to grow tax-deferred until you start receiving payments, providing a powerful retirement savings tool.
Deferred Annuity Results
Payout Analysis
Tax Comparison
Understanding Deferred Annuities
Deferred annuities are retirement savings vehicles that allow your money to grow tax-deferred until you choose to start receiving payments. Unlike immediate annuities that start paying immediately, deferred annuities accumulate value over time before converting to income.
How Deferred Annuities Work
You make contributions to a deferred annuity, and the money grows tax-deferred until annuitization. At that point, the accumulated value is converted to a stream of payments that can last for life or a specified period. The tax-deferral allows compound growth to work more effectively.
Future Value = Contributions × (1 + r)^n
Tax-deferred growth allows compounding on pre-tax dollars
Types of Deferred Annuities
| Type | Description | Risk Level | Best For |
|---|---|---|---|
| Fixed Deferred | Guaranteed interest rate | Low | Conservative investors |
| Indexed Deferred | Returns linked to market index | Medium | Balanced risk/reward |
| Variable Deferred | Invested in mutual funds | High | Growth-oriented investors |
| Equity-Indexed | Hybrid of fixed and indexed | Medium-Low | Moderate growth seekers |
Tax Advantages
- Tax-Deferred Growth: No taxes on investment gains until withdrawal
- Compound Effect: Pre-tax dollars compound faster
- Flexible Taxation: Control timing of taxable events
- Exclusion Ratio: Portion of payments may be tax-free
- 1035 Exchange: Tax-free transfer from other annuities
Fees and Charges
- Mortality and Expense (M&E) Risk Fee: 1-2% annually for insurance guarantees
- Administrative Fees: $25-50 per year for account maintenance
- Surrender Charges: 5-10% penalty for early withdrawal
- Underlying Fund Expenses: 0.5-2% for variable annuity sub-accounts
- Optional Rider Fees: Additional costs for enhanced benefits
Annuitization Options
- Single Life: Highest payments, ends at death
- Joint and Survivor: Continues for surviving spouse
- Period Certain: Guaranteed payments for fixed period
- Life with Period Certain: Lifetime payments with minimum guarantee
- Installment Refund: Lump sum to beneficiaries if early death
Advantages
- Tax Deferral: Maximizes compound growth potential
- Guaranteed Income: Lifetime income option available
- Flexible Contributions: Add money over time
- Death Benefits: Protection for beneficiaries
- Creditor Protection: May be protected from creditors
- Professional Management: Investment options managed by professionals
Disadvantages
- High Fees: Multiple layers reduce investment returns
- Illiquidity: Surrender charges for early access
- Tax Complexity: Complex tax rules and exclusion ratios
- Inflation Risk: Fixed payments lose purchasing power
- Opportunity Cost: May underperform other investments
- Insurance Company Risk: Dependent on insurer's financial strength
When to Consider
- Maxed Out Retirement Accounts: Additional tax-advantaged savings
- Need Guaranteed Income: Want lifetime income security
- Conservative Investor: Prefer steady growth over market volatility
- Estate Planning: Want to provide income for survivors
- Tax Planning: Need to defer taxes on investment gains
- Long-Term Horizon: Time to overcome fees and surrender charges
Comparison with Other Investments
- vs. 401(k)/IRA: Similar tax treatment but with insurance guarantees and higher fees
- vs. Mutual Funds: Tax deferral advantage but much higher costs
- vs. CDs: Potentially higher returns but with more risk and fees
- vs. Immediate Annuities: Growth potential vs. immediate income
Key Consideration: Deferred annuities excel at tax-deferred growth and providing guaranteed lifetime income, but their high fees can significantly reduce returns. They're most suitable for long-term investors who want the security of insurance guarantees and have maxed out other tax-advantaged retirement accounts.