What Is a Deferred Income Annuity (DIA)?

Retirement planning isn’t just about saving—it’s about making sure your money lasts.

A Deferred Income Annuity (DIA) is a financial tool designed to provide guaranteed income later in life, helping to eliminate the fear of outliving your savings. Sometimes called a "longevity annuity," a DIA allows you to set aside funds today in exchange for predictable income starting at a future date. Unlike investments that fluctuate with the market, DIAs offer fixed payments, giving you financial stability in retirement.

How Does a Deferred Income Annuity Work?

A DIA is a contract between you and an insurance company. You contribute a lump sum or series of payments, and in return, the company guarantees you a steady stream of income beginning at a future date—one that you select when setting up the annuity.

Here’s a general breakdown of how DIAs work:

You make an upfront payment (or a series of payments).
You choose when you want to start receiving income—this could be years or even decades later.
The insurance company guarantees fixed payments for life (or a set period), providing financial security.

Think of it like creating your own personal pension. The longer you wait to start receiving payments, the higher your monthly income will be—because the insurance company calculates payouts based on your life expectancy at the time income begins.

Key Features and Benefits of a DIA

DIAs have several features that make them a unique and effective retirement planning tool:

No stock market risk—your payments are not affected by market downturns.
Customizable payouts—choose lifetime income, period-certain payments, or a combination of both.
Tax-advantaged growth—money grows tax-deferred inside the annuity, and if held in a non-IRA account, payments may receive favorable tax treatment.
Optional cost of living adjustments (COLA)—you can add inflation protection to increase payments over time.
Joint income options—can be structured to provide income for both you and your spouse.
No annual fees—unlike some financial products, DIAs do not typically have ongoing fees.
Long deferral options—income can be deferred up to 40 years, making DIAs flexible for long-term planning.

How Is a DIA Different From Other Annuities?

A DIA is often compared to a Single Premium Immediate Annuity (SPIA) because both provide guaranteed income. The main difference is the timing of payments:

SPIAs begin paying out within 12 months of purchase.
DIAs allow you to delay payments for years or even decades, which typically results in higher payouts when the income starts.

DIAs also have a sister product called a Qualified Longevity Annuity Contract (QLAC), which is specifically designed for Traditional IRAs and some employer-sponsored retirement plans. QLACs follow specific funding rules but function similarly to DIAs.

Who Should Consider a Deferred Income Annuity?

A DIA may be a good fit for individuals who:

Are planning for long-term financial security and want a predictable income stream.
Want to supplement other retirement income sources, like Social Security and pensions.
Are concerned about outliving their savings and want to ensure they have guaranteed income later in life.
Prefer a set-it-and-forget-it approach to managing retirement income.

Because DIAs are long-term products, they are best suited for individuals who won’t need access to the funds until the income start date.

Important Considerations Before Purchasing a DIA

Before committing to a DIA, it’s important to understand:

The annuity company’s financial strength—payments are only as reliable as the company issuing them.
The impact of inflation—while COLA (Cost of Living Adjustment) features exist, they reduce initial payout amounts.
Your liquidity needs—once you fund a DIA, access to those funds is typically limited.

Much like Social Security, the longer you delay receiving payments, the higher the payout will be. Because of this, many people structure DIAs to begin payments later in retirement, supplementing other income sources.

Final Thoughts

Deferred Income Annuities can be a valuable tool for securing guaranteed retirement income. They offer simplicity, predictability, and peace of mind, making them a strong choice for individuals who want a stable financial future without the worry of market fluctuations.

As with any financial decision, it’s important to consider your individual goals and circumstances. A DIA might not be the right fit for everyone, but for those looking to lock in income for the future, it can be a powerful strategy.

Request a free, no-obligation phone consultation with Paul Zobel to see if a DIA is the right choice for your retirement income.

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