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5.5 Deferred Annuities

Learning Outcomes

Calculate deferred withdrawals from a retirement fund and deferred payments on a debt.

To understand deferred annuities, let us first go back and examine the definition of an annuity. An annuity is “a series of equal-sized payments, at regular intervals, over a fixed period of time.” What then does it mean to defer this annuity?  It means to delay (or defer) the regular payments for a period of time.

Because there is a deferral period and a payment (annuity) period, there are actually two parts to the problem:

Timeline of a deferred annuity

Part 1: Deferral Period

  • There are no payments in part 1 (PMT1 = 0).
  • The only money being added to the initial balance (PV1) is the interest being earned (or charged).
  • The ending balance from the deferral period (FV1) equals the starting balance for the annuity (PV2).

Part 2: Annuity with Regular Payments

  • Payments are being made or withdrawn (PMT2).
  • Assume the final future value (FV2) equals 0 unless told otherwise.

See the sections below for key formulas, tips and examples related to deferred annuities calculations.


  1. A student loan is a special case of a deferred annuity in that if the student receives a government-sponsored student loan, they do not need to pay any interest while they are in school.
  2. If the Government of Canada has given out the student loan, then it is a special case of a deferred annuity. The student does indeed defer their payments until after they have finished school (they can wait up to 6 months after they are done school to start their payments).
definition

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