Deferred Income Annuities

Shawn Plummer

CEO, The Annuity Expert

What is a Deferred Income Annuity?

A deferred income annuity (DIA) is a type of insurance product that provides future income. It involves making an initial investment, either as a lump sum or through multiple payments. In return, the insurance company agrees to start paying a fixed income at a later specified date, typically during retirement. This income is guaranteed for either a set period or for the lifetime of the annuitant.

Key Takeaways

  • Pension-like annuities: DIAs are likened to a pension, providing stable income for life or a chosen Guarantee Period. It requires a single premium payment, after which the investor is assured of a future income stream.
  • Lifetime Income: They provide a guaranteed income stream for life, starting at a future date selected by the investor, generally 13 months to 40 years from purchase.
  • Personalization: Investors can choose income terms and optional features to suit their needs, including beneficiary protection or an annual payment increase feature to help keep pace with inflation.
  • Stability: These annuities offer consistent payments that are unaffected by market fluctuations.
  • Simplicity: DIAs are straightforward to integrate into retirement plans.
  • Role in a Diversified Income Plan: Deferred income annuities contribute to a balanced retirement strategy, offering unique benefits due to longevity risk pooling, ensuring income for longer life spans.
  • Charges and Fees: There typically are no charges or fees associated with this annuity product.
Deferred Income Annuity Pros And Cons

Deferred Income Annuity Pros And Cons

Pros

  1. Guaranteed Income: DIAs provide a stable, predictable income, beneficial for retirement planning.
  2. Inflation Protection Options: Some DIAs offer riders that can increase payouts to keep up with inflation.
  3. Tax Benefits: Funds grow tax-deferred until income payments begin.
  4. Flexibility in Payments: Options to choose either lump-sum or periodic payments for the initial investment.

Cons

  1. Lack of Liquidity: Once invested, funds in a DIA are not easily accessible without significant penalties.
  2. Inflation Risk: If not adjusted for inflation, the purchasing power of the fixed income can decrease over time.
  3. No Bequest Option: Without a death benefit rider, any remaining balance is not passed on to heirs after the annuitant’s death.
  4. Interest Rate Sensitivity: The initial payout rates are influenced by current interest rates; a lower rate at the time of purchase can lead to lower income payments.
Deferred Income Annuity

Example of Deferred Income Annuity

Suppose you invest $100,000 in a DIA at age 60, with payments to start at age 70. The insurance company might guarantee you a fixed monthly income of $1,000 for life, starting at age 70. This income continues regardless of market fluctuations or other economic factors.

Key Features of Deferred Income Annuities

FeatureDescription
Investment TypeLump sum or periodic payments
Payout StartChosen future date, typically at retirement
Income TypeFixed, regular payments
DurationLifetime or a specific period
Inflation AdjustmentOptional riders available
LiquidityLimited, with penalties for early withdrawal
Tax TreatmentTax-deferred growth until payouts begin
Bequest OptionsLimited without specific riders

Comparing Deferred Income Annuity Rates

Use this tool to compare the current DIA annuity rates. The annual payouts are fixed.

Deferred Income Annuities

How Do Deferred Income Annuities Compare?

Variable
Annuity
Fixed Index
Annuity
Fixed
Annuity
Immediate
Annuity
Deferred
Income
Annuity
Principal ProtectionNoYesYesYesYes
Access To PrincipalYesYesYesNoNo
Control Over MoneyYesYesYesNoNo
Tax-Deferred GrowthYesYesYesNoNo
Guaranteed GrowthNoYesYesNoNo
Guaranteed IncomeYesYesYesYesYes
Inflation ProtectionYesYesNoYesYes
Death BenefitYesYesYesYes/NoYes/No
Long-Term Care HelpYesYesYesNoNo
What Is A Deferred Income Annuity

Conclusion

Deferred income annuities offer a reliable source of income, especially useful for retirement planning. While they provide financial stability and tax advantages, they also come with limitations like lack of liquidity and inflation risks. It’s essential to consider these factors to determine if a DIA aligns with your financial goals. Contact us today for a free quote.

What Are Deferred Income Annuities

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Frequently Asked Questions

Are deferred income annuities a good idea?

Deferred income annuities can be a good idea for individuals seeking a guaranteed income stream in the future. They provide a way to ensure a stable income during retirement.

What are the disadvantages of a deferred annuity?

While deferred annuities have benefits, they also come with potential disadvantages. Some drawbacks include limited access to funds during the deferral period, potential surrender charges for early withdrawals, and the possibility of lower returns compared to other investment options. Additionally, annuities can be complex and involve fees and expenses that should be carefully considered.

At what age do you have to pay income on a deferred income annuity?

The age at which you must pay income tax on a deferred income annuity depends on when you start receiving payments. Generally, once you begin receiving income from the annuity, it becomes taxable as ordinary income. The specific age can vary based on the annuity contract terms and local tax laws.

What is a dia annuity?

A dia annuity, short for deferred income annuity, provides guaranteed income for life starting at a future date chosen by the investor. Unlike immediate annuities, the payments do not start immediately, allowing for potential growth in the annuity’s value. This type of annuity can help individuals plan for retirement by creating a reliable income stream for the future.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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