Deferred Payment Annuity

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DEFINITION of 'Deferred Payment Annuity'

An annuity where the payments received will start some time in the future, as opposed to starting when the annuity is initiated. An annuity is a financial contract that allows the buyer to make a lump-sum payment, or a series of payments, in exchange for receiving future periodic disbursements. A deferred payment annuity allows the investment to grow both by contributions and interest before payments start coming back. Also known as a deferred annuity.

BREAKING DOWN 'Deferred Payment Annuity'

Deferred payment annuities typically offer tax-deferred growth at a fixed or variable rate of return, just like regular annuities. Often deferred payment annuities are purchased for under-age children, with the benefit payments postponed until they reach a certain age. Deferred payment annuities can be helpful in retirement planning.