Higher Payouts, Pension-Like Income from Deferred Income Annuities

There are certain places where you often see negative information about annuities.  So when a financial magazine like Kiplinger’s says that “Deferred Income Annuities Offer Predictability,” you know that these products are something to look into.  Kimberly Lankford points out that deferred income annuities create a lifetime stream of income similar to a pension.  Both Baby Boomers and insurance companies like these products for their guaranteed income.  Deferred income annuities combine benefits from an immediate annuity and a deferred variable annuity.  Your monthly payment is fixed over your lifetime, like it is with most immediate annuities.  But similar to a variable annuity with guaranteed benefits, you leave your money in there and allow for it to grow before you start receiving these fixed payments.

It has only been two years since deferred income annuities in their current form came about.  New York Life has sold more than $1 billion of the products in that time frame.  LIMRA’s managing director for retirement research says that nine companies offer deferred income annuities right now and points out that they create a pension-like stream of income in retirement.  The longer the time frame that you defer your annuity, the higher the payout will be that you receive.  A 58-year old man purchasing New York Life’s Guaranteed Income Future Annuity with $100,000 would get a yearly payout of $9,200 over his lifetime if he deferred payments for nine years.  By waiting an additional three years, he will receive $12,790 per year guaranteed over his lifetime.  Keep in mind that if your annuity is bought with funds from a 401k or traditional IRA, you will have to make sure that you take out the required minimum distributions at age 70 1/2 and don’t try to defer later than that.

The Kiplinger article also points out that deferred income annuities give you steady income and higher payouts.  You give up the flexibility of being able to withdraw your money whenever you please, but for that sacrifice you receive much higher payouts.  The 58-year old from the earlier example gets a 9% yearly payout if he defers payments for nine years, even higher if he defers for the twelve years.  Variable annuities typically offer 5-6% with some growth potential as well.  They also pay death benefits if you die before you have started to receive payouts.  Fidelity offers both deferred income and variable annuities.  Their senior vice-president says that you choose the former if you want predictable guaranteed income and the latter if you are looking for growth potential.

A new version from Northwestern Mutual offers dividends that can either be reinvested for higher payouts in the future or paid to you as an additional payment.  There are a good number of deferred income annuities on the market right now, but you are likely to see many more products come about in the near future.  Deferred income annuities help you receive an income stream with higher payouts than you might otherwise have found elsewhere.

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