TL;DR
Deferred annuities offer significantly higher monthly payouts because payment periods are shorter. Immediate annuities start right away but at lower rates. The break-even point is typically 8-12 years after deferral. Use the calculator to model your optimal start age based on health, other income, and longevity expectations.
How deferral affects payouts
Annuity payout rates increase with age because the expected payment period decreases. For each year you delay starting income:
Approximate increase per year of deferral:
- Age 60-65: 6-8% higher payout
- Age 65-70: 7-9% higher payout
- Age 70-75: 8-10% higher payout
Example: $100,000 premium
- Start at 60: $480/month
- Start at 65: $650/month (+35%)
- Start at 70: $820/month (+71% from age 60)
- Start at 75: $1,050/month (+119% from age 60)
The break-even analysis
For $100,000 premium:
- Start at 65: $650/month
- Start at 70: $820/month (you defer 5 years, but get $170 more monthly)
Break-even calculation:
- You give up: $650 × 60 months = $39,000 by waiting to 70
- You gain: $170 more per month starting at 70
- Break-even: $39,000 ÷ $170 = ~229 months, or age 89
If you live past 89, waiting to 70 wins. If you die before 89, starting at 65 wins.
Decision factors
Reasons to choose immediate annuity (start now):
- You need income immediately to cover expenses
- You’re in poor health or have shorter life expectancy
- You want to lock in current rates (concern about future rate declines)
- You have insufficient other income sources during the deferral period
- You’re already at or beyond your break-even age
Reasons to choose deferred annuity (wait):
- You’re in excellent health with family longevity history
- You have other income to cover the gap years
- You want longevity insurance for later retirement
- You expect interest rates to rise
- You’re comfortable with investment risk during deferral
Tax considerations
Qualified accounts (IRA, 401k):
- RMDs may force you to start income by age 73 anyway
- Deferred growth is tax-deferred regardless
- Consider RMD timing in your deferral decision
Non-qualified accounts:
- Longer deferral allows more tax-deferred growth
- Exclusion ratio may be more favorable with longer deferral
- No RMD requirements give you more flexibility
Hybrid approach: Annuity laddering
Instead of all-or-nothing, consider purchasing annuities at multiple ages:
Example ladder strategy:
- Age 60: 25% of premium for bridge income
- Age 65: 25% of premium when retiring
- Age 70: 25% of premium for enhanced income
- Age 75: 25% of premium for maximum longevity protection
Benefits:
- Reduces timing risk
- Provides some income now with higher income later
- Hedges against interest rate uncertainty
- Creates natural income increases over time
Interactive scenarios to model
Use the calculator to compare:
- Different start ages with your premium amount
- Break-even analysis based on your life expectancy
- Joint vs single life at different ages
- After-tax income comparing immediate vs deferred
Internal next steps
- Compare start ages with the Annuity Simulator
- Read Longevity-Based Scenario Planner
- Review After-Tax Income Guide
FAQ
What if I die during the deferral period?
With most deferred annuities, your beneficiaries receive the premium amount (or accumulated value if growth phase). Refund features can guarantee return of premium.
Can I change my start date after purchase?
With some deferred annuities, you have a window to choose your start date. Others have a fixed date at purchase. Read contract terms carefully.
Is there an optimal age to start?
There’s no single optimal age—it depends on your health, other income, and longevity expectations. For healthy retirees with good family history, delaying to 70-75 often maximizes lifetime income.