Are you looking for a secure and steady income stream you can count on in your retirement years? Then you might want to consider a Deferred Income Annuity (DIA) annuity. This type of annuity provides you with a guaranteed stream of income starting from a future date you choose, giving you peace of mind and financial security in your golden years.
This guide will dive into what a Deferred Income Annuity (DIA) annuity is, how it works, and the benefits it provides. We will also discuss the potential drawbacks of DIA annuities and who may benefit most from this type of annuity.
- What is a Deferred Income Annuity (DIA) Annuity?
- How Does a Deferred Income Annuity (DIA) Annuity Work?
- Benefits of a Deferred Income Annuity (DIA) Annuity:
- Drawbacks of a Deferred Income Annuity (DIA) Annuity:
- Who may Benefit from a Deferred Income Annuity (DIA) Annuity?
- Choosing the Right DIA Annuity
- Tax Implications of DIA Annuities
- Risks and Limitations of DIA Annuities
- Deferred Income Annuity Pros and Cons
- Deferred Income Annuity Payouts
- How Do Deferred Income Annuities Compare?
- What Do My Beneficiaries Receive When I Die?
- Next Steps
- Request A Quote
What is a Deferred Income Annuity (DIA) Annuity?
A Deferred Income Annuity (DIA) annuity is a contract that provides you with a guaranteed income stream starting at a future date of your choice. With a DIA annuity, you make a lump sum payment or a series of payments to the insurance company that issues the annuity. In return, the insurer guarantees to provide you with a steady stream of income payments that start on a specified date in the future and continue for the rest of your life.
How Does a Deferred Income Annuity (DIA) Annuity Work?
When you purchase a DIA annuity, you decide on the start date of your income payments, typically at least 13 months after your initial payment. The longer the deferral period, the higher your income payments will be. The insurer calculates your income payments based on your age, the amount of money you invest, and the start date of your payments.
Your payments are guaranteed and fixed, which means they will not change regardless of market fluctuations or changes in interest rates. This provides you with a stable source of income that you can rely on in your retirement years.
Benefits of a Deferred Income Annuity (DIA) Annuity:
One of the primary benefits of a DIA annuity is the guaranteed income stream it provides. This income stream can help you cover your living expenses and provide you with peace of mind, knowing that you have a secure source of income in your retirement years.
With a DIA annuity, your income payments are fixed and guaranteed. This gives you predictability in your retirement income, making planning and budgeting for your retirement years more manageable.
No Market Risk:
Unlike other retirement investment vehicles, such as stocks or mutual funds, DIA annuities are not subject to market fluctuations or changes in interest rates. This means that stock market or interest rate changes will not affect your income payments.
DIA annuities can offer tax benefits, depending on how they are structured. For example, if you purchase a DIA annuity with after-tax dollars, your income payments will be partially tax-free.
Drawbacks of a Deferred Income Annuity (DIA) Annuity:
Lack of Liquidity:
When you purchase a DIA annuity, your money is tied up in the contract, which means you will not have access to it until your income payments begin. This lack of liquidity can be a drawback for some investors who may need access to their money in an emergency.
The fixed-income payments provided by a DIA annuity do not account for inflation, which means that the purchasing power of your income payments may decrease over time.
The interest rates offered by DIA annuities are typically lower than those offered by other investment vehicles, such as CDs or money market accounts. This means that the potential for growth and return on investment may be lower with a DIA annuity.
Who may Benefit from a Deferred Income Annuity (DIA) Annuity?
DIA annuities may benefit individuals looking for a secure and steady source of income in their retirement years. This includes those who:
- Are you approaching retirement age, or are you already retired
- Have a low tolerance for risk
- They want to ensure a predictable and stable source of income for their retirement years.
- Are concerned about outliving their retirement savings
- They want to reduce the risk of market fluctuations or changes in interest rates affecting their retirement income.
Choosing the Right DIA Annuity
When considering a DIA annuity, choosing the right product that meets your financial goals and objectives is essential. Consider factors such as the deferral period, the amount of your initial investment, and the start date of your income payments. Also, compare different insurers and their products to find the best deal.
Tax Implications of DIA Annuities
DIA annuities can have tax implications, depending on how they are structured. For example, purchasing a DIA annuity with pre-tax dollars will make your income payments taxable. However, your income payments will be partially tax-free if you purchase a DIA annuity with after-tax dollars.
Risks and Limitations of DIA Annuities
DIA annuities come with certain risks and limitations you should know before investing. For example, they offer limited liquidity, and fixed-income payments may not keep up with inflation. You should also know surrender charges if you withdraw your money before your income payments start.
Deferred Income Annuity Pros and Cons
|Income Riders||Deferred Income Annuity|
|Guaranteed income for life||Guaranteed income for life or fixed period|
|Flexibility to start/stop income stream||Tax-favored withdrawals on nonqualified annuities|
|Potential paycheck increases for inflation.||No additional fees|
|Costs range from no cost to 1.25% annually||Irrevocable payments; No refunds|
|Potential to earn interest||Can be surrendered before receiving income|
|Future income guaranteed today||Can not be surrendered after receiving income|
|Can be surrendered or cashed in||Earns approximately 1% interest annually|
|Lump-Sum Death Benefit||No liquidity|
|Help with long-term care costs||No death benefit or series of payments|
|Standard liquidity||Can not help healthcare costs|
- In some cases, the annuity policy can generate higher payout rates for you than an income rider (variable annuity, fixed annuity, fixed indexed annuities) will.
- The annuity payments to you are guaranteed. You can choose how often you collect your retirement paychecks, typically monthly, quarterly, semi-annually, or annually.
- You can have peace of mind knowing there’s consistent income as if you were working during retirement.
- It offers an irrevocable stream of retirement paychecks, which means once the income start date has begun, there’s no turning the annuity payments off.
- Little to no regular liquidity features like fixed index annuities or variable annuities.
- Sometimes there’s no death benefit, such as a life annuity.
- The return rate is low, and typically there is no cash value to grow during the deferral period.
Deferred Income Annuity Payouts
You receive guaranteed income for as long as the Annuitant lives, but with no payments after the Annuitant’s death. This option should not be chosen if you want someone to receive payments after the Annuitant’s death.
Joint and Contingent Life Income
Income payments continue for as long as the annuitant or contingent annuitant lives. Thus, the joint-life income amount will be paid in full while the Annuitant is alive.
If the Annuitant dies before the contingent Annuitant, payments will continue at the rate you requested in your application and be paid for as long as the contingent annuitant lives.
Payments will cease at the death of both the Annuitant and the contingent Annuitant.
Income for a Fixed Period
Payments are guaranteed for the number of years and months chosen in the application. If the Annuitant dies before the end of the fixed period, a death benefit, consisting of a series of payments equal to the commuted value, will be paid. The death benefit recipient may elect to receive the remaining guaranteed annuity payments, as scheduled, instead of the commuted value.
Life Income with a Guaranteed Period
You are guaranteed income payments for as long as the annuitant lives. However, if the Annuitant should die during the guaranteed period you selected, you or your beneficiary will receive the remaining guaranteed payments.
Life Income with Installment Refund
Your payments will begin on the income start date and are guaranteed to continue for the Annuitant’s lifetime.
Suppose the Annuitant dies before receiving the total annuity payments equal to the initial purchase price. In that case, payments will continue to the named primary beneficiary until all payments are equal to the original purchase price.
Life Income with a Cash Refund
Your payments will begin on the income start date and are guaranteed to continue for the Annuitant’s lifetime. However, if the Annuitant dies before receiving total annuity payments at least equal to the purchase price, the difference will be paid to the named beneficiary in a lump sum.
Inflation Adjusted (Cost of Living Adjustment)
An optional feature in which you elect a lesser initial income amount upfront with annual increases for inflation.
How Do Deferred Income Annuities Compare?
|Access To Principal||Yes||Yes||Yes||No||No|
|Control Over Money||Yes||Yes||Yes||No||No|
|Long-Term Care Help||Yes||Yes||Yes||No||No|
What Do My Beneficiaries Receive When I Die?
If a Deferred Income Annuity owner dies before annuitizing the contract, the annuity’s balance will be provided to beneficiaries. If the owner dies after receiving payments, the beneficiaries may or may not receive a death benefit depending on the payout the owner selects.
Helpful tip: Life insurance might be a better option if you want to leave money to your beneficiaries. In some cases, you don’t need to take a medical exam. Instead, use our tool to shop for life insurance quotes online, free of charge. Coverage starts at $9.37 per month.
A Deferred Income Annuity (DIA) annuity is a contract that provides a secure and steady stream of income payments starting at a future date of your choice. While DIA annuities offer several benefits, including guaranteed income and predictability, they also come with certain risks and limitations, such as limited liquidity and inflation risk. Overall, DIA annuities may benefit individuals looking for a secure source of income in their retirement years. Still, it’s essential to carefully consider the product and its tax implications, risks, and limitations before investing.
Use our free deferred income annuity calculator to get estimates. If you want to learn more about DIAs or a quote, contact us; we would be happy to help!
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