Annuity Due vs. Deferred Annuity

Attribute	Annuity Due	Deferred Annuity
Payment Timing	Payments are made at the beginning of each period	Payments are made at the end of each period
Accumulation Period	No accumulation period	Has an accumulation period before payments begin
Start of Payments	Payments start immediately	Payments start after a specified period
Interest Earnings	Interest is earned on payments immediately	Interest is earned on accumulated amount before payments begin

Introduction

Annuities are financial products that provide a steady stream of income over a specified period of time. There are different types of annuities, each with its own unique features and benefits. Two common types of annuities are Annuity Due and Deferred Annuity. In this article, we will compare the attributes of these two types of annuities to help you understand the differences between them.

Definition

Annuity Due is a type of annuity where payments are made at the beginning of each period, such as monthly or annually. This means that the first payment is made immediately, and subsequent payments are made at the beginning of each period. On the other hand, Deferred Annuity is a type of annuity where payments are made at a later date, typically after a certain period of time has passed. This means that the first payment is delayed, and payments are made at regular intervals after the deferral period.

Payment Timing

One of the key differences between Annuity Due and Deferred Annuity is the timing of payments. In Annuity Due, payments are made at the beginning of each period, which can be advantageous for individuals who need immediate income. This type of annuity is often used by retirees who want to start receiving payments right away. On the other hand, Deferred Annuity allows individuals to delay payments until a later date, which can be beneficial for those who want to save for retirement or other long-term goals.

Accumulation Period

Another important factor to consider when comparing Annuity Due and Deferred Annuity is the accumulation period. In Annuity Due, the accumulation period starts immediately, as payments are made at the beginning of each period. This means that the annuity starts to grow from day one, allowing for faster accumulation of funds. In contrast, Deferred Annuity has a deferral period where payments are delayed, so the accumulation period starts later. While this may result in slower growth initially, it can lead to larger payments in the future.

Flexibility

When it comes to flexibility, Annuity Due and Deferred Annuity offer different options for investors. Annuity Due provides immediate income, which can be beneficial for individuals who need a steady stream of payments right away. However, this type of annuity may not offer as much flexibility in terms of changing payment amounts or timing. On the other hand, Deferred Annuity allows for more flexibility in terms of when payments start and how much they are. This can be advantageous for individuals who want to customize their annuity to meet their specific needs.

Risk and Return

Both Annuity Due and Deferred Annuity come with their own set of risks and potential returns. Annuity Due offers immediate income, which can provide financial security for retirees or individuals in need of regular payments. However, this type of annuity may have lower returns compared to Deferred Annuity, as the accumulation period starts sooner. Deferred Annuity, on the other hand, has the potential for higher returns due to the longer accumulation period. However, there is also the risk of market fluctuations affecting the annuity's performance.

Conclusion

In conclusion, Annuity Due and Deferred Annuity are two types of annuities that offer different benefits and features. Annuity Due provides immediate income with payments made at the beginning of each period, while Deferred Annuity allows for payments to be delayed until a later date. The choice between these two types of annuities will depend on individual financial goals, risk tolerance, and need for flexibility. It is important to carefully consider the attributes of each type of annuity before making a decision to ensure that it aligns with your financial objectives.