Many of our clients from Lucent have wanted to know more about immediate and deferred annuities. To start off simply, the terms immediate annuity and deferred annuity simply indicate when the distribution phase of the annuity begins. Both allow unlimited contributions, and both can provide, upon election, a continuous stream of payments for life. So, what's the difference?

Immediate Annuities

First, we'd like our clients from Lucent to understand immediate annuities. Immediate annuities allow you to convert a lump sum of cash into an income stream. They differ from deferred annuities in that they do not have an accumulation period. They are funded with a single lump-sum payment rather than with a series of premium payments. An annuity option is chosen, and the distribution period begins within 12 months after the purchase.

Immediate annuities may appeal to any Lucent clients who want an investment return that they cannot outlive. The distributions are considered partly a return of the original investment and partly earnings. You are taxed on the earnings portion only.

Immediate annuities are also used to provide benefits from a terminated defined benefit pension plan. In this situation, the accrued benefits under the plan are determined for each plan participant, and a single premium annuity may be purchased for each plan participant, with benefits usually starting at age 65.

Another common use is in the structured settlement of lawsuits. In these cases, the parties agree to pay a sum of money not as a lump sum but as a series of payments, often for the life of an injured party. A monthly amount to be paid is agreed to by the parties, and an annuity is purchased that provides that amount.

Deferred Annuities

Next, we'd like to make sure our Lucent clients understand deferred annuities. With a deferred annuity, you make a lump sum or a series of premium payments and defer the payout until some time in the future. This is known as the accumulation period. The earnings in the annuity are not subject to taxation until distributed.

Deferred annuities can provide an attractive investment supplement to IRAs and qualified pension plans such as 401(k) plans.

Note: We'd like our Lucent clients to note that annuity guarantees are subject to the claims-paying ability of the annuity issuer. Annuity distributions made prior to age 59½ may be subject to a 10% federal tax penalty unless an exception applies.

As you plan your financial future, understanding the full scope of Lucent's retirement benefits gives you the strongest foundation. As an employee, you should know that Lucent maintains a defined benefit pension plan that has been frozen to new benefit accruals -- meaning the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents, so the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents, which means the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents, so the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents. Lucent does not appear to offer a formal retiree healthcare program, making healthcare coverage planning an important consideration if you retire before age 65. A retirement plan that fully integrates your Lucent benefits gives you the most accurate projection of your future financial picture.