When an annuity is purchased with the intent of having the first payment paid at a later date it is called a delayed annuity. Just like every annuity, a delayed annuity is designed to provide a cash flow for the annuity holder, but payments are set to start after a specific, predetermined schedule some time in the future.
With a delayed annuity the annuitant can make periodic contributions to the plan but may not withdraw funds until the predetermined time. One might set up such an annuity early in one’s working life and continue to make contributions until retirement. At that point, contributions would cease and withdrawals may begin. Those withdrawals would come in the form of regular income payments.
A delayed annuity may also refer to an annuity where one puts a lump sum and delays payment deliberately for a specified number of years. For example, if a retiree was to receive a lump sum payment but did not want to take the income until other financial sources ran out, they may reinvest in a delayed annuity which would start paying income in 10 years or even longer.
All annuities offer significant tax advantages sine the contributions are not subject to taxation. When the funds are withdrawn later, they are taxed at a lower rate. Another advantage is that funds do not need to be contributed on a regular basis. The annuitant can deposit more when they have the money, and less when they don’t.
Most deferred annuity plans are set up in such a manner as to guarantee that the depositor gets back at least as much as they put in. It is important to evaluate any annuity you are considering for such a contingency.