What defines a Deferred Annuity?

A Deferred Annuity is characterized by the fact that it allows for the accumulation of funds over a period of time before any income payments are made. The critical element in this definition is that the income payments do not commence immediately; rather, they begin at a future date after a specified accumulation phase has passed, which is often one year or more from the time of purchase.

This structure makes deferred annuities particularly appealing for individuals who wish to save for retirement or for a long-term financial goal while benefiting from tax-deferred growth during the accumulation phase. During this time, the funds within the annuity can grow without being taxed until withdrawals are made or payments begin, typically at retirement age.

In contrast, immediate annuities start payments right away, lump-sum payments do not allow for ongoing contributions or growth, and deferred annuities are generally not meant for short-term investments as they are designed for long-term financial planning. Thus, the correct answer accurately reflects the defining feature of a Deferred Annuity.