“Deferred income annuities have a proven track record of helping seniors guard against longevity risk in retirement. A DIA allows you to create a stream of predictable, tax-advantaged income that you won’t outlive.”- Ed Hochard.
For many people, the idea of outliving their retirement savings is frightening. If this is the case for you, you might want to look into a Deferred Income Annuity (DIA) as a way to create a stream of lifetime income.
A DIA, also known as a “longevity annuity,” allows you to receive payouts that begin at a future date, usually anywhere from two years to thirty years. You can design the payouts from a DIA to continue for the rest of your life, or your spouse’s life, or a specified period.
In exchange for your lump-sum purchase, the annuity issuer promises regular payments to you that being on a specific date and continue for either your life or a specified period. You get to choose how frequently you get payouts, monthly, quarterly, or annually.
One of the best things about modern deferred income annuities is that they are exceptionally flexible and are customizable to meet your specific needs and goals. You also have numerous options for funding a DIA, including proceeds from the sale of equities or bonds, a business, or your home. You may also fund a deferred income annuity using a lump-sum distribution from your tax-qualified defined benefit plan, Roth IRA, 401k, or traditional IRA.
As part of your “safe money” bucket, deferred income annuities provide several advantages. DIAs can create stable, guaranteed streams of income that you can’t outlive. Another advantage is that, unlike other types of investments, DIAs have an elegant simplicity. You can set and forget a DIA, and you won’t need to monitor the stock market or constantly worry about interest rates and dividends.
DIAs tend to be calculated at higher rates than CDs or Treasuries. With a DIA, every payment you get also returns part of the principal, so you get more money than interest alone. In a DIA, your principal is safe since your money is not subject to market downturns. Suppose high fees were discouraging you from checking out annuities. In that case, you’ll be glad to know that deferred income annuities do not have the annual account management and maintenance fees found in other products.
If you’re contemplating purchasing an annuity, you might want to think about getting a DIA with unique options, particularly if:
- You want guaranteed lifetime income for both yourself and your spouse, an option called a “Joint and Survivor Annuity.”
- You would like payments to continue for a specific period, typically five years or more, paid to your designated beneficiary. This arrangement is known as a “Certain and Continuous” Annuity.
- You want to ensure that if you die before your initial investment has been distributed, the balance of the deposit will go to your beneficiary. This option is known as a Refund Annuity.
Summing it up: Purchasing a deferred income annuity is a simple, straightforward way to provide guaranteed lifetime income while protecting against market fluctuations. A DIA can help mitigate the stress many people experience in the “decumulation” phase of retirement. DIAs can bolster your existing savings, Social Security, and employer plans and help prevent you from spending too much of your nest egg when you retire. If not running out of money in retirement is important to you, you should contact an annuity expert to see if purchasing a DIA makes sense.