Calculate both phases in one view: how your money grows during accumulation, then how much monthly income it generates — and compare starting income at 65 vs. 70.
✓ Two-phase modeling✓ 65 vs 70 comparison✓ Deferral bonus calculator✓ Updated May 2026
A deferred annuity has two distinct phases: an accumulation phase (contributions grow tax-deferred) followed by a payout phase (you receive regular income). This two-phase structure makes deferred annuities uniquely powerful for younger savers — the accumulation period can last decades before income begins.
Last updated May 2026 · IRS allows up to $200,000 in a QLAC within a qualified retirement account
Your Timeline
Accumulation (25 yrs)
Payout (20 yrs)
Accumulation — tax-deferred growthPayout — guaranteed monthly income
Phase 1 — Accumulation
Growth Phase
$50,000
$500/mo
5.5%
Phase 2 — Payout
Income Phase
5.0%
20 years
Note: The payout rate may differ from the accumulation rate. Insurers calculate payout using actuarial mortality tables. Always confirm both rates in your contract.
Accumulation years:25 years Payout starts at: Age 65
Value at Payout Start
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Monthly Income
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Total Contributed
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Total Interest
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Does Waiting Until 70 Pay Off?
Deferring income from age 65 to 70 gives your money 5 more years to compound — but you forgo 5 years of income payments. Here's how your specific inputs compare:
Start Income at 65
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Balance at 65: —
Total received (20 yrs): —
Start Income at 70 (+5 yrs growth)
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Balance at 70: —
Total received (20 yrs): —
About Deferral Bonuses
Some deferred annuity contracts add an immediate 5–10% premium bonus to your starting balance. A $50,000 deposit with a 10% bonus begins accumulating from $55,000. This sounds attractive, but bonus contracts typically carry higher fees, longer surrender periods (10–15 years), and lower payout rates. Always compare the all-in net value — not just the headline bonus — before choosing a bonus product.
$200K
IRS QLAC limit in qualified retirement accounts (2026)
25 yrs
Typical accumulation phase for a 40-yr-old retiring at 65
10%
Free annual withdrawal allowed in most contracts
The Power of Time in Phase 1
A 40-year-old depositing $50,000 plus $500/month for 25 years at 5.5% accumulates approximately $410,000 by age 65. That balance can generate over $2,700/month for 20 years. Without tax-deferred growth, the same after-tax contributions in a taxable account accumulate meaningfully less due to annual tax drag on dividends and interest.
Start Income at 65 vs. 70 — Full Comparison Table
Factor
Start at 65
Start at 70
Difference
Accumulation period
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+5 years of growth
Account value at income start
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Monthly income (20 yrs payout)
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—
—
Total received over 20 yrs
—
—
—
Payments forfeited (ages 65–70)
N/A
—
Cost of waiting
Net gain from waiting
Baseline
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—
Why the Payout Rate Differs from the Accumulation Rate
Insurance companies use different rates for growth and payout. The accumulation rate reflects what they can earn investing your money; the payout rate factors in mortality experience, administrative costs, and the insurer's margins. Always confirm both rates explicitly in your contract before signing. For payout-only modeling, see our annuity payout calculator. If you're ready to start income now, see our immediate annuity calculator.
Frequently Asked Questions
What is the difference between a deferred and immediate annuity?
An immediate annuity converts a lump sum into income right away — within 30 days of purchase. A deferred annuity has a waiting period (accumulation phase) during which your money grows before income begins. Deferred annuities are better for people still working who want to build wealth tax-deferred. Immediate annuities are better for retirees who need income to start right away. Both ultimately serve the same goal: converting savings into a reliable income stream.
How long should I defer an annuity?
The longer you defer, the more you accumulate due to compounding — but delaying income also means you forgo years of payments. A common strategy: defer until age 65–70 when Social Security benefits are also maximized, creating complementary income streams. Longevity annuities (DIA/QLAC) are specifically designed to start income very late (age 80–85), providing insurance against living an exceptionally long life. The IRS allows up to $200,000 in a QLAC within a qualified retirement account.
What happens if I die during the accumulation phase?
Most deferred annuities include a death benefit that pays your named beneficiary at least the account value, or the total of your contributions (whichever is higher), if you die before annuitization. Enhanced death benefits — available for an extra fee — may lock in higher values at market peaks. This is one advantage deferred annuities have over term CDs: the death benefit is funded by your own contributions rather than being a separate expense.
Can I withdraw money during the accumulation phase?
Yes, but with restrictions. Most contracts allow a free withdrawal of up to 10% of the account value per year without surrender charges. Amounts above this trigger surrender charges, typically declining from 7–10% in year one to 0% by the end of the surrender period (usually 5–10 years). Early withdrawals before age 59½ also trigger a 10% IRS penalty plus ordinary income tax on earnings. Plan for this illiquidity when deciding how much to allocate to a deferred annuity.
What is a QLAC and should I consider one?
A Qualified Longevity Annuity Contract (QLAC) is a deferred income annuity purchased inside a traditional IRA or 401(k) that is specifically excluded from Required Minimum Distribution (RMD) calculations. This lets you defer income (and taxes) until as late as age 85. The IRS limits QLAC purchases to $200,000 total. QLACs are particularly valuable if you're concerned about longevity and want to reduce your required annual RMD burden.
Are deferral bonuses worth it?
It depends — bonus products (5–10% premium added upfront) typically come with longer surrender periods (10–15 years instead of 5–7), higher ongoing fees, and lower credited interest rates. The bonus may also be "vested" over time, meaning you only keep it if you hold the contract for years. For most investors with a 7+ year horizon who want maximum flexibility, standard contracts without bonuses often yield better net results. Always compare the all-in projected value over your expected holding period.