What is the benefit of having an annuity grow tax-deferred?

Choosing an option that highlights the benefit of tax-deferred growth in an annuity correctly identifies a significant advantage of this financial product. When an annuity grows tax-deferred, it means that the earnings on the investment do not incur taxes as they accumulate. This allows for compound growth, which refers to the process of earning interest on both the initial principal and the interest that has already been added to the account.

By deferring taxes until withdrawal, the investment can potentially grow more rapidly than it would in a taxable account, where taxes could reduce the amount of interest that can be reinvested each year. This compounding effect can significantly enhance the value of the annuity over time, allowing for a larger payout when withdrawals are eventually made.

The other options present different aspects of financial products or benefits that do not specifically relate to the tax-deferred nature of annuities. Immediate cash flow relates to other investment strategies, while guaranteed payments and lower fees are separate considerations that may apply to various investment tools but do not directly address the significance of tax deferral.