In the context of annuities, what does "defer" typically refer to?

In the context of annuities, "defer" primarily relates to the delay of tax payments on investment earnings. Annuities often include a tax-deferred growth feature, which means that the earnings on the investment are not subject to taxes until withdrawals are made. This benefit can enhance the overall growth potential of the investment, as the account can accumulate more over time without the immediate impact of taxation.

This tax-deferred status is a significant aspect of annuities, enticing individuals to use them as a retirement savings tool. By deferring taxes, clients can potentially grow their investments more substantially compared to taxable accounts, where taxes are assessed annually on interest, dividends, and capital gains.

Understanding this concept clarifies the advantages annuities present and why many individuals find them appealing for long-term financial planning, particularly for retirement.