What is a Deferred Income Annuity?
A deferred income annuity (DIA) is a financial product designed to provide a stream of income during retirement, starting at a future date. Unlike immediate income annuities, which begin payments almost immediately, DIAs allow you to invest a lump sum now, with income payments commencing at a later predetermined time, typically several years later.
Key Features:
- Deferral Period: You choose how long to defer your income, which can range from a few years to several decades.
- Guaranteed Income: Once payments begin, DIAs provide a guaranteed income for a specified period or for the lifetime of the annuitant.
- Customizable Options: You can select variations, such as inflation protection or beneficiary options that ensure payout after the policyholder's death.
Benefits:
One of the primary advantages of a deferred income annuity is that it helps retirees manage longevity risk, ensuring a stable income source in the later years of retirement. Additionally, since the payout amount is based on the annuitant's age and the time before payments start, it can potentially offer higher monthly payments compared to immediate annuities.
Considerations:
While DIAs can be beneficial, it is crucial to assess your overall financial strategy and consider factors like income needs, tax implications, and liquidity preferences. Consulting a financial advisor can help tailor the choice to your specific retirement goals.