What is the main purpose of deferred annuities?

The main purpose of deferred annuities is to provide income payments at a specified future date. These financial products are designed to allow individuals to save and accumulate funds over time, often with favorable tax treatment until withdrawals begin. Deferred annuities are set up to pay out either at a defined point in the future or at the end of a specified accumulation period.

This mechanism benefits individuals who are planning for retirement because it allows them to defer taxes on investment gains until they start receiving payments. When the annuitant reaches the chosen time to commence payments—often at or after retirement—they can receive regular income, which can help cover living expenses and provide financial security in retirement.

The other options address different types of annuities or financial products. Immediate income payments are characteristic of immediate annuities, not deferred ones, as immediate annuities start making payments soon after a lump sum is paid. Producing a lump sum at retirement aligns more with certain investment accounts or savings vehicles rather than the core function of a deferred annuity. Funding life insurance policies does not pertain to annuities at all, as these are separate financial instruments meant for distinct purposes.