What does a deferred annuity primarily function as?

What does a deferred annuity primarily function as?

• A. An accumulation vehicle
• B. Immediate annuity payment
• C. Investment performance variable
• D. Registered security

Answer: (A)

A deferred annuity primarily functions as an accumulation vehicle. This type of financial product is designed to help individuals save and grow their investments over time before the payout phase begins. During the accumulation period, the funds within the deferred annuity can grow on a tax-deferred basis, meaning that taxes on income or gains are not paid until the money is withdrawn. This feature allows the invested funds to potentially grow faster compared to taxable accounts, making it an effective tool for long-term savings and retirement planning. The payout phase will begin at a later date, at which point the annuity will provide regular income to the annuitant. However, the core function of a deferred annuity is to facilitate accumulation during the initial phase, preparing for future financial needs, such as retirement income or other long-term goals. This differentiation is key to understanding how deferred annuities are utilized in financial planning.

A deferred annuity primarily functions as an accumulation vehicle. This type of financial product is designed to help individuals save and grow their investments over time before the payout phase begins. During the accumulation period, the funds within the deferred annuity can grow on a tax-deferred basis, meaning that taxes on income or gains are not paid until the money is withdrawn. This feature allows the invested funds to potentially grow faster compared to taxable accounts, making it an effective tool for long-term savings and retirement planning.

The payout phase will begin at a later date, at which point the annuity will provide regular income to the annuitant. However, the core function of a deferred annuity is to facilitate accumulation during the initial phase, preparing for future financial needs, such as retirement income or other long-term goals. This differentiation is key to understanding how deferred annuities are utilized in financial planning.