At the time you purchase a contract you may be able to choose when benefit payments begin. You'll select between an immediate or deferred annuity.
Immediate Annuities
Immediate annuity contracts require a single premium payment. Benefit payments normally must begin within one year after the annuity is purchased.
Let's say you've decided you want benefit payments from your immediate annuity every month. You can usually get your first payment one month after you pay the premium.
If you want annual payments, your benefits generally will start one year after you pay the single premium.
You might buy an immediate annuity just before retiring if you want to guarantee a stream of payments over your lifetime.
This type of annuity is simply a way to convert a sum of money into a steady flow of income over a period of time.
Deferred Annuities
When you choose to start the payout phase at some future date, you have a deferred annuity.
You might buy a deferred annuity during your working years to provide retirement income. You could schedule benefits to begin on the date you anticipate retiring.
You can usually alter the date when benefit payments begin. The contract will specify what you must do to make such a change, but any change in the date will likely also change each benefit payment amount.
Deferred fixed annuities specify that you will earn interest on funds held by the company during the deferral period.
The contract will usually guarantee a minimum interest rate, but the actual credited interest rate will vary and be declared by the company from time to time. Declared rates can never be lower than the guaranteed minimum rate specified in the contract.