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Deferred Income Annuities Are More Flexible Than You Think

Deferred income annuities have been gradually increasing in popularity over the past decade.  William Byrnes and Robert Bloink published an article in Think Advisor discussing the new flexibility of these products.  According to “Deferred Income Annuities: More Than Just Longevity Insurance,” most people view these products as longevity insurance that will protect them from outliving their retirement savings.  That is definitely the most common use for deferred income annuities and probably their greatest benefit.  Deferred income annuities offer a pension-like income stream that starts later in life and lasts as long as you live.  More insurance companies are selling DIAs since they solve one of the greatest problems facing retirees today: creating a stream of income from your savings that you cannot outlive.  With the increasing competition in the marketplace, deferred income annuities are evolving and offering even more benefits than most people realize.  The increasing flexibility of DIAs makes them a can’t miss product for retirees.  They can help make your retirement portfolio more well-rounded if you purchase them at the right time.

One of the most common misconceptions when it comes to deferred income annuities is that you have to defer them until you are very old.  Some people do not like deferring their income that long because they worry that they won’t live as long as their deferral period lasts.  Deferring your payments until an old age ensures that your payments will be higher and creates lifetime protection against longevity risk.  But many DIAs offer time frames where you can start receiving income as soon as 13 months from purchase.  The longest time frames are 45 years from purchase.  It’s important for the annuity industry to clear up this common misconception so that consumers who will benefit from using DIAs for their other benefits don’t miss out on an opportunity.

There are a few other ways that deferred income annuities offer increased flexibility to consumers.  Not only can you choose a start date from just over a year to 45 years in the future, you can often change the start date after you have made your selection.  If you personal situation changes over the course of time, you can opt to defer your annuity payments further or take the income sooner.  Deferred income annuities offer cost of living adjustments that will help protect against the risk of inflation.  Inflation is almost guaranteed, especially when you are looking decades into the future, so it’s important to have a product in your retirement plan that accounts for it.  A lot of DIAs also pay non-guaranteed dividends over the annuity’s life.  You can either reinvest these dividends into your annuity to increase your guaranteed income or take the cash dividends when they are paid.  Another good benefit of deferred income annuities is that you don’t have to pay the entire premium up front.  Most DIAs give you the flexibility to continue adding to the premium until you start receiving your income.

Deferred income annuities are one of the best ways to protect against longevity risk.  But they are useful for so much more than that particular benefit.  The flexible options available with deferred income annuities make them an important part of many retirement plans.  DIAs are definitely worth considering when planning for your retirement.  Our new article, “The Right Way To Evaluate a Deferred Income Annuity,” can help answer some of your deferred income annuity questions.

Written by Rachel Summit

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