A deferred annuity is a type of annuity contract where the annuitant delays the receipt of income payments until a later date, typically for the purpose of accumulating funds for retirement. During the deferral period, the annuity contract may earn interest or investment returns on the premium paid by the annuitant. It becomes an income stream when the annuitant decides to start receiving periodic payments, which is known as the annuitization phase.

Key features of deferred annuities:

1. **Deferral Period:**
– The deferral period is the time between when the annuity is purchased and when the annuitant starts receiving income payments. This period allows the funds to grow through interest, investment returns, or other crediting methods chosen by the annuity contract.

2. **Accumulation Phase:**
– During the accumulation phase, the annuity contract may offer a fixed interest rate, a variable return linked to market performance, or a combination of both. The goal is to accumulate a larger sum that can generate more significant income payments during the annuitization phase.

3. **Guaranteed Minimums:**
– Many deferred annuities come with guaranteed minimum interest rates, ensuring that even if market returns are low, the annuitant will receive a specified minimum level of interest on their premium.

4. **Tax Deferral:**
– One of the advantages of deferred annuities is the tax-deferred growth of earnings. During the accumulation phase, the annuitant is not required to pay taxes on the interest or investment gains. Taxes are only assessed when the annuitant begins receiving income payments.

5. **Annuitization Phase:**
– The annuitization phase marks the transition from the accumulation phase to the distribution phase. The annuitant can choose various payout options, such as receiving a fixed stream of income for a specific period (period certain), receiving income for life (life annuity), or other customized options.

6. **Flexibility in Payout Options:**
– Deferred annuities typically offer flexibility in choosing payout options. Annuity owners may opt for a lump-sum payment, periodic income payments, or a combination of both, depending on their financial needs and preferences.

7. **Death Benefit:**
– Many deferred annuities include a death benefit that provides a payout to beneficiaries if the annuitant passes away during the accumulation phase. The death benefit is often equal to the premium paid or a guaranteed minimum amount.

8. **Variability in Returns:**
– In the case of variable deferred annuities, the returns are tied to the performance of underlying investment options, such as mutual funds. As a result, the annuity’s value may fluctuate based on market conditions.

9. **Surrender Charges:**
– Some deferred annuities have surrender charges if the annuitant withdraws a significant portion of the funds before a specified surrender period expires. Surrender charges are intended to discourage early withdrawals.

10. **Riders and Options:**
– Annuity contracts may offer various riders and options, such as guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits (GMWB), and others, which can enhance the contract’s features based on the annuitant’s needs.

Deferred annuities can be suitable for individuals looking to accumulate funds for retirement while enjoying tax-deferred growth. However, potential annuity purchasers should carefully review the terms of the contract, understand fees and charges, and consider their individual financial goals and circumstances before making a purchase. Consulting with a financial advisor is often recommended to ensure that an annuity fits into an overall financial plan.