Deferred Income Annuities

Deferred income annuities (DIAs) are similar to immediate annuities in that you exchange a sum of non-refundable money (premium) in return for a guaranteed stream of income for the rest of your life. This guarantee is backed by the financial strength of the insurance company. The difference is that immediate annuities usually start paying within 1 month, while deferred income annuities don’t start paying for at least a year or more. Another difference is that you can usually make additional premium payments to a DIA, therefore increasing your future income benefit.

Here are quotes for monthly income starting at various ages based on investing $100,000 at age 60 with a cash refund and no inflation adjustments (as of mid 2024). With the cash refund, if you die prior to starting your income you’ll receive a refund of your premium; and if you die after receiving your income, your beneficiaries receive a refund for the remaining unpaid premium amount.

Age Income Starts	Male, age 60	Female, age 60	Joint, age 60
65	$737	$715	$668
70	$1,049	$1,006	$924
75	$1,643	$1,562	$1,356
80	$2,871	$2,664	$2,117
85	$4,957	$4,062	$3,513

Deferred income annuities can also be set up to pay as single or joint life only, or with a period certain (10, 20 years, etc.) guarantee, and with inflation protection. To avoid information overload, only the cash refund, no inflation option was shown. The point is that, no matter which option is chosen, you can get a bigger payout by delaying when the income begins.

Most insurance companies require you to choose the start date of your income when you apply for coverage. Some will allow you to move the start date forward or backward after the contract is issued. As with immediate annuities, how long you live, ultimately determines your return. It is recommended that if you use a DIA, only a portion of your assets should be used for the purchase.

A deferred income annuity is sometimes called a “longevity annuity” or “longevity insurance” because it helps prevent you out living your money. An investment today can provide a substantial amount of income in your later years when you are more susceptible to running out of money. While that was the original idea behind DIAs when they first came out, they can be utilized in a variety of ways.

Potential uses:

To provide future financial stability no matter how long you live.
Instead of waiting 20-25 years to receive a benefit, retirees can give themselves an “income bump” after 5-15 years.
Younger investors can create a “pension” for their retirement years.
With a future income stream locked in to offset some expenses, you could 1) decide to be more conservative with your investment portfolio because you may not need or want to take the risk, or 2) decide to be more aggressive to potentially increase your assets knowing that you have a safety net to fall back on.