Immediate or deferred annuity

An immediate annuity pays the annuity payment immediately. A deferred annuity pays the annuity payment at a specified date in the future. During the deferred period, the invested sum is invested to earn interest.

If you do not need the annuity payment immediately, you have the following options:
a) buy a deferred annuity
b) invest your money separately and buy an immediate annuity at the future date

Your choice depends on the terms that you are offered. For example, if the insurance company pays 2.5% per annum for the deferred period, it will be attractive compared to leaving the money in the bank to earn 1%.

If you buy the deferred annuity, you are locked into the contract now. If you wish to withdraw from it later, you may be subject to penalty. You should choose the deferred annuity only if you are sure that it is what you really want.

My preference is to invest separately and buy an immediate annuity at the time that you need the annuity payment. For example, it is better to keep your minimum sum in the Central Provident Fund until 62 or 65 years, and earn interest at 4% plus bonus of 1%. You can decide at 62, if you wish to switch to an immediate annuity at that time.

Lesson: Keep the flexibility. Do not be locked into a contract that you cannot change. If you buy an annuity contact, stick to it for the entire period.