Terry Turner, Financial writer for Annuity.org
  • Written By
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Foundation for Financial Wellness and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).

    Read More
  • Edited By
    Lamia Chowdhury
    Lamia Chowdhury

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Annuity.org. Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

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  • Published: March 10, 2023
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How to Cite Annuity.org's Article

APA Turner, T. (2023, June 27). Andrew Rosen: Immediate vs. Deferred Annuities. Annuity.org. Retrieved June 15, 2024, from https://dev.annuity.org/podcast/andrew-rosen-immediate-vs-deferred-annuities/

MLA Turner, Terry. "Andrew Rosen: Immediate vs. Deferred Annuities." Annuity.org, 27 Jun 2023, https://dev.annuity.org/podcast/andrew-rosen-immediate-vs-deferred-annuities/.

Chicago Turner, Terry. "Andrew Rosen: Immediate vs. Deferred Annuities." Annuity.org. Last modified June 27, 2023. https://dev.annuity.org/podcast/andrew-rosen-immediate-vs-deferred-annuities/.

What’s the Difference: Immediate vs. Deferred Annuities?

Annuities come in two categories: immediate or deferred. Andrew Rosen, president of Diversified, LLC, explains how to decide if one or the other is better suited to your goals.

In the second episode of our three-part series on the basics of annuities, Rosen explains the differences between immediate and deferred annuities.

With an immediate annuity, you can convert savings into an almost instant pension if you’re about to retire. On the other hand, a deferred annuity can provide a guaranteed lifetime income sometime in the future — if you’re years or decades away from retirement.

In this episode, you’ll learn about:

  • The pros and cons of both immediate and deferred annuities.
  • How both types of annuities provide security in retirement — but what you may be giving up.
  • Things to know before buying an annuity.
  • Factors to consider when choosing the best annuity for your financial needs and goals.
  • Who might be better suited for one type of these annuities over the other.

This Episode's Guest

Andrew Rosen, CFP®, CEP® Andrew Rosen, CFP®, CEP®
President of Diversified, LLC
About Diversified, LLC

Transcript

Terry Turner

Welcome to the Annuity.org podcast, your path to financial freedom through better understanding annuities, selling structured settlements, personal finance and retirement planning. I’m Terry Turner, and in this episode, we continue our three-part series explaining the basics of annuities with a discussion of their two most basic types, immediate and deferred annuities. We’re joined again by certified financial planner and certified estate planner, Andrew Rosen. He’s president of Diversified LLC, which provides financial planning and investment management services. Mr. Rosen, thanks for joining us again.

Andrew Rosen, CFP®, CEP®

Thanks for having me, Terry.

Terry Turner

Can you explain the difference now between immediate annuities and deferred annuities? We talked about different types earlier, and these are two very different types of annuities, aren’t they?

Andrew Rosen, CFP®, CEP®

Yes. For sure, Terry, for sure. So, at its simplest form, an immediate annuity is you take a sum of money, you shop it to a different insurance carriers, and you say, “I’m going to give you this much money and I want to know who’s going to give me the highest income or pension for my life or mine and my spouse’s life.” You can determine the criteria. There’s many different criteria for how you want it to pay. And then you find who just, today, will start paying you right now a pension, a fixed, predictable income stream.

A deferred annuity says I don’t need income today, but I want to… I do want some form of… Again, generally speaking, not all of them work this way, but I want to take my money, put it into an investment vehicle that will in the future give me a baseline which generates some sort of upside potential income stream. So, that’s basically the difference. It’ll grow in the markets in a deferred annuity with… Sometimes there’s features that give you some sort of step up or option to keep driving that income even higher years down the road when you need it.

Terry Turner

Is there a difference in the costs and the returns between an immediate or a deferred annuity?

Andrew Rosen, CFP®, CEP®

Yeah. The costs in an immediate annuity are less transparent. Generally speaking, it’s all embedded and in the rate they’re going to pay you. A deferred annuity, much more transparent in it, and depending what features you want. They’re not all the same, and they don’t have all the same features, and there’s a lot more bells and whistles to a deferred annuity. So, one of the things to be considering is the cost and benefit analysis when looking at a deferred annuity. What are you paying for, what are you willing to pay for and what’s the benefit, and are you comfortable with it?

Terry Turner

When or under what circumstances should someone consider an immediate annuity over a deferred annuity or vice versa?

Andrew Rosen, CFP®, CEP®

Yeah. An immediate annuity will generally give you the highest predictable payment. Conversely, you’re generally giving up those proceeds, any future use of those dollars. You’re saying, “Insurance company, I’m handing over my XYZ dollars into your care, and in turn, I want this money for as long as I live.” It’s much like a pension. When it stops, it’s done. If you live a hundred more years after giving the insurance company that money or a hundred more days, the money is theirs.

Terry Turner

So how is a deferred annuity different in this particular case?

Andrew Rosen, CFP®, CEP®

There’s typically more cost, and that’s for someone who wants to have some level of predictable income on their money, generally speaking, however, wants to keep control of those dollars for their or their heirs’ purposes. So, at its core, do you want the most amount of income, and that income today? That’s someone that is generally considering a immediate annuity. Or is it more a planning tool for their future and retirement, and they want to cover some portion of their retirement needs through a annuity and in such, but still maintain control?

Terry Turner

And that’s the deferred annuity? So what are the pros and cons that people should consider before they buy any type of annuity?

Andrew Rosen, CFP®, CEP®

The pro is predictability. You generally know what you’re getting, and some people like to have that, and whether it’s de-risking or help in their income needs or something of that nature. They’re much more of a fixed, predictable product, whereas your general investment world stocks and bonds and mutual funds and ETS go up and down and are not predictable. For that, you are usually giving up something.

The con is you’re giving up something, whether that’s flexibility on the dollars, whether that’s costs, whether that’s how much of the upside you keep, whether that’s usability of those funds in the future. The big buyer beware is know the annuity inside and out, and know what it costs, and know what you’re getting and giving up.

Terry Turner

What costs should people look out for when they’re buying an annuity? What costs are out there besides just the premiums you’re paying?

Andrew Rosen, CFP®, CEP®

So, one, there’s opportunity costs or cost to get out of the product if you get in. One is, there is M&E expense, which is a mortality expense. There is cost for the funds you’re purchasing or sub-accounts in an annuity if it’s a defer. And then, there’s the cost of the bells and whistles you wish to purchase. So in annuity, because you’re buying and you’re de-risking in a lot of regards and putting some of the risk on another entity, i.e. an insurance company, you’re paying for that benefit. So, you should just know what the cost of that benefit is.

Terry Turner

Thanks, Andrew.

Andrew Rosen, CFP®, CEP®

You take care, and I hope this is helpful.

Terry Turner

Andrew Rosen, president of Diversified LLC in Delaware, Pennsylvania, Massachusetts and Alabama. And thank you for joining us on the Annuity.org podcast. On our next episode, we’ll continue our introduction to the basics of annuities with Mr. Rosen with a discussion about annuities as investments. In the meantime, for more information about annuities, personal finance, anything else we talk about here, check out Annuity.org, your path to financial freedom. You can subscribe to the Annuity.org podcast for free wherever fine podcasts are found.

And, by the way, if you have any questions about annuities or you have a story about how annuities have played into your personal financial planning or into your retirement, we’d love to hear from you. Drop us an email. The address is [email protected]. Our theme music, Feeling Good, was produced by White Hot. It’s available at Freebeats.io. I’m Terry Turner for Annuity.org.

Thoughts and opinions expressed in this podcast are strictly anecdotal and should not be taken as financial advice. Views of the interviewee do not necessarily reflect those of the author, editor or Annuity.org.
Last Modified: June 27, 2023