Do you know what makes a Deferred Income Annuity different? Let us guide you through what you should know, so you don’t let confusion get in the way of your retirement plans.
First of all, Deferred Income Annuities are contracts, not investments. Their contracts are issued by life insurance companies. So, a Deferred Income Annuity is like a Single Premium Immediate Annuity because they're both transfer-risk contracts with no moving parts, no market attachments, and no annual fees.
The difference between a Deferred Income Annuity and a Single Premium Immediate Annuity is the start time. With Deferred Income Annuities, the earliest you can start is 13 months from the contract issue date, and you can defer it as far out as 40 years with some carriers. So it comes down to, with a Deferred Income Annuities, two questions. Answer the two questions. What do you want the money to do contractually, and when do you want those contractual guarantees to start? Deferred Income Annuities are a good part of a portfolio for income flooring. When you're guaranteeing a future income floor that you can never outlive, in combination with your Social Security or your pension, Deferred Income Annuities work. If you do not need guaranteed income payments at all, then you do not need a Deferred Income Annuity, but if you need income to start in the future, or 13 months and out, for example, then a Deferred Income Annuity would be a great place to start to look at quotes.
Well, with the Deferred Income Annuity or Single Premium Immediate Annuity, it doesn't matter what type of annuity you're talking about for income. When you're asking how much does it pay per month, you're asking about a specific situation about you. So because of that, I'm going to need specific information on you, like your date of birth or dates of birth, if it's a joint life policy, when the incomes will start, what type of account you're going to use. The guarantee will be the same; I just want to show you the taxation of the income coming out of that specific account. Then I will need to know what state that you live in because Deferred Income Annuities are fixed annuities, and fixed annuities are regulated at the state level. So I'm going to quote all carriers once you give me that specific information, and then I'm going to be able to tell you what $100,000 annuity pays per month.
Understand that annuity lifetime income with a Deferred Income Annuity or immediate annuity, any type of annuity that provides lifetime income, is a combination of return of principal plus interest. So you're getting your money back with interest. Life expectancy is the primary pricing mechanism. Interest rates play a secondary role. Up until that point is a pure transfer of risk to the company, meaning you're transferring the risk to the annuity carrier to pay you for the rest of your life, regardless of how long you live.
That means that money is going to hit as long as you're breathing. When you die, you can structure that policy so that 100% of any unused money will go to the listed beneficiaries of the policy, and the annuity company will not keep a penny under any circumstance.
Let me answer that question in a couple of ways. A deferred annuity can be of four types. So let's talk about the receiving income side, which is a Deferred Income Annuity. A Deferred Income Annuity is a pension product that you can defer as short as 13 months up to 40 years. You're transferring the risk to the annuity company to pay regardless of how long you live, and that payment is primarily based on your life expectancy when you make the payment. Deferred Income Annuities work just like Social Security. The older you are, the higher the payment, the longer you defer, the more they enhance the payment.
So let's go to the other side of the ledger, which are deferred annuities that aren't income-based. Multi-Year Guarantee Annuities is the industry version of a CD; it gives you a guaranteed annual interest rate for a specific period that you choose. The other two types are Variable Annuity which was put on the planet in 1955 for deferred tax growth using mutual funds.
The annuity industry calls them separate accounts, but they are mutual funds, don't be confused. Then the third type of deferred annuity, which’s not income-based, is a Fixed Indexed Annuity. It was put on the planet in 1995 to compete with CD returns, and that's precisely what it does. It is not a market return product; it is not a security. It's a fixed annuity and a life insurance product regulated at the state level. Even though it's sold as a too good to be true market return product, it is not. It's an excellent principal protection product.
I would encourage you to contact us at theannuityman.com, where we can figure out which annuity type if any, works for you. Then, if we find out that one does work, we'll quote all carriers to find the highest contractual guarantee for your specific situation.