What is a deferred annuity primarily used for?

A deferred annuity is primarily designed to accumulate funds over time before the investor starts receiving payouts, or annuitization. This financial product allows individuals to make contributions that grow tax-deferred until they are ready to withdraw the money, typically during retirement. The accumulation phase can be particularly advantageous for those looking to save for future expenses, such as retirement income, as it enables the investment to grow without immediate tax consequences.

This is in contrast to immediate annuities, which begin to pay out right away, making immediate income options irrelevant in this context. Additionally, while deferred annuities can indeed support future healthcare expenses or function alongside life insurance policies, these are secondary benefits rather than their primary purpose. The core objective of a deferred annuity is to build a financial reserve that can later be turned into a stream of income.