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Understand Deferred Income Annuities

Deferred Income AnnuitiesDeferred Income Annuities, also known as Longevity Insurance Guarantees and Lifetime Income Guarantee Contracts, have several acronyms- DIA’s, LIG, or just Longevity Insurance.  They are an exciting evolution of the most traditional form of annuity, the Immediate Annuity.

With a Single Premium Immediate Annuity, or SPIA, you buy lifetime income that starts immediately, and generally do so with the payment of a single premium amount.  These types of annuities are explored in the Immediate Annuity Pages.

By contrast, a Deferred Income Annuity offers all the benefits of longevity protection and lifetime income, but it does it in a more efficient way by deferring the start date of the income stream.

Benefit

A few of the main benefits of Deferred Income Annuities are:

  • Build safety around your entire portfolio by eliminating the risk of outliving your money.
  • Plan effectively with the rest of your assets when the single biggest unknown is solved.
  • Cream off the best of the best that the Insurance Company can offer- Mortality Credits.
  • In a low rate world, your payout on a Deferred Income Annuity can be tremendous.

Who It’s Right For

The primary benefit from a Deferred Income Annuity is a high, guaranteed, lifetime payout.

Therefore, the perfect buyer for these types of payments is a relatively young (40’s to 50’s) aged, healthy individual or couple who have a high expectation of longevity.

It’s also perfect for relative affluent people for whom the premium is a small percentage of their assets.  It allows them to enjoy a higher standard of living and spend down their money confidently.

Quite simply, annuitization of assets- meaning, turning your assets into the maximum possible spendable lifetime income at the lowest risk- is mathematically proven to be only possible by using income annuities.

And a deferred income annuity skims off the absolute best a carrier has to offer.

Who Should Not Consider This Annuity

The major disadvantage of a pure longevity income insurance policy is that when you pass away, any unrecovered principal is surrendered to the insurance company.

Now, there are ways to structure the contract to continue payments in your absence, give us a call for more.

But those who can not afford to support themselves prior to the start of income from a DIA policy, or those who do not believe they will live well into their 90’s, may not find the risk of living too long to be worth the price of giving up a portion of their assets  long in advance.

How To Buy

To get started with deferred income annuities, give us a call.  We will generate current market quotes based on your age and discuss your income needs to see if they are appropriate for you.

Longevity Insurance In The News

longevity protection annuityLongevity Insurance is one of the best ways to guarantee lifetime income AND take advantage of the higher yields offered by Secondary Market Annuities.  It works like this:

Assume we are talking about a 65 year old California man with $1M assets who need $5000/ month for his essential living expenses

Step 1: Purchase a lifetime income guarantee policy, sometimes called Longevity Insurance, to give you  enough income but starting at age 85.  Rates vary regularly but recent quotes for a 65 year old California man paid over $6000/ month  per $100,000 of premium.

Step 2: Now that the lifetime income/ longevity risk of outliving income is taken care of, the remaining $900,000 in assets can be positioned for maximum yield to last a defined period of time.  And Secondary Market Annuities are the single best way to get a high yield in a guaranteed, fixed term investment.

With longevity – the biggest unknown – out of the way, the rest is easy!

We have relationships with the major carriers in the longevity marketplace, so if this strategy strikes a chord with you, please give us a call.  We can make it happen.

Here’s a recent WSJ article on the topic as well:

In recent months, insurers including Massachusetts Mutual Life Insurance, Northwestern Mutual and New York Life Insurance have introduced these products.

In February, the Treasury Department issued a proposal to make it easier for people to buy so-called longevity insurance products—which start payments at, say, age 80 or older—in 401(k) and individual retirement accounts.

Economists say it can make sense to put a small portion—for example, 10% to 15%—of your nest egg into such a policy upon retirement to protect yourself from running out of money from age 80 or 85 on. But insurers including New York Life and Northwestern Mutual say that with pension plans falling by the wayside, a growing number of buyers are purchasing these policies in their 50s as a way to secure a pension substitute in their 60s and beyond.

“In 2008, people saw their 401(k) balances get decimated. Now, they want certainty,” says Tim Hill, a consulting actuary and principal who specializes in annuities at actuarial consulting firm Milliman.