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Annuity Comparison: Income Rider vs. DIA

Stan Haithcock
March 30, 2023
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Which Annuity Is Right for You?

Man, we're going to have fun today. We're going to make an annuity comparison looking at Income Riders versus Deferred Income Annuities. The acronym is DIA. Let's talk about the difference between the two and the similarities. This falls under the category of, what? Retirement income insurance, lifetime income insurance, income insurance, whatever you want to call it. Car insurance, fire insurance, home insurance, health insurance, dental insurance, and income insurance. That's what these are. Income Riders and Deferred Income Annuities fall under the category I created called income later. You need income later. You need income, lifetime income, to start at a later date. I got a call the other day. Guy says, "Hey, I need income in seven years." Okay, great. We're going to quote both Deferred Income Annuities and Income Riders to contractually solve for lifetime income in the future for you and your spouse. Income later, that's the way we do it. And you can run your own quotes on Income Riders and Deferred Income Annuities our Annuity Calculators. So, I told him this, here's the goal. Income Rider is here, and Deferred Income Annuities are here. They're both getting to that goal using a different contractual guarantee but still getting to the goal using the contractual guarantee.

Income Riders

Let's talk about income riders. Income Riders are not really an actual standalone annuity. An Income Rider is like a saying it's a rider riding on a policy. An Income Rider is an attachment to a policy, typically a Variable Annuity or Indexed Annuity. I don't sell variable annuities, and I don't sell anything that has the potential to go down. No offense to you guys and gals selling Variable Annuities, but we've found that the riders attached to Indexed Annuities and Fixed Index Annuities offer a higher contractual guarantee. We shop all carriers for the highest contractually guaranteed rider. There's not one income rider that's better than the other. With Income Riders, you have to understand that when you take out income from a non-IRA account, income will be taxed last in, first out, and gains first at ordinary income levels. So, understand that. And if you use it inside an IRA, everything coming out is tax ordinary income levels. If you use an Income Rider in a Roth IRA, tax-free income, not sure you need to use it in a Roth IRA, but you could. We'll have that conversation, book a call with me, we'll break it all down, and I'll give you my opinion of many, many, many, many decades of experience. There's not one situation I have yet to see, and I'll give you my opinion on which account type to use, whether it's Roth, non-IRA, or IRA. So, that's income riders, and you can set it up your life, joint life, etc.

Now, look at it like this from a visual standpoint. Draw a line down in the middle of a page and put Indexed Annuity on one side. We don't really care what that returns can be. It's a Fixed Annuity, and you're not going to get market returns or a CD type return. And then, on the other side, put down Income Rider. Two separate calculations. When you go to the side or get your statement, there are two separate calculations: accumulation value and income rider value. We are only focused on the Income Rider. We are only focused on the contractual guarantee, and we are only focused on the will do, not might do. What's will do? The will do is the contractual guarantees. What's the might do? That is the hypothetical, theoretical, projected back-tested, hopeful, agent return scenarios, unicorns chasing the butterflies, butterfly. That's crap. That's the back-tested, nonsense pie-in-the-sky crap. We only look at contractual guarantees. That's income riders, and that's one way to do income later.

Deferred Income Annuities

Let's talk about Deferred Income Annuities. Deferred Income Annuities really come from Immediate Annuities. It's the same structure as an Immediate Annuity. No moving parts and no market attachments. It's just so simple. It's a transfer risk. The difference between a Deferred Income Annuity and an Immediate Annuity is that in an Immediate Annuity, income starts between 30 days and a year. With a Deferred Income Annuity, same thing. It starts a year later. So, if again, you call me and say, "You know what? I want to see income later. I want income to start in seven years, five years, four years, three years, nine years, 10 years, 11 years," whatever. I'm going to quote Deferred Income Annuities and Income Riders. For Deferred Income Annuities, you just punch it in. It's either going to be your life or joint life, and we can do that. We can also use any account, like Deferred Income Annuities, inside an IRA. Most carriers will not allow you to run a quote with income going past age 72. With income riders, by the way, a lot of them will. A lot of them will allow you to defer past age 72. But with Deferred Income Annuities, there's a myriad of ways to structure them. This is all customizable on the Deferred Income Annuity side. You can do it for life only, joint life only, life with installment refund, life with cash refund, and life with a period certain. One of the reasons that we need to connect and you need to schedule a call with me is to determine which structure fits your situation best because they're all different. Annuity companies don't give anything away. The more backstop or guarantee that you put on that lifetime income stream, they're just going to lower the payments accordingly.


There's no perfect answer to inflation, with both Income Riders and Deferred Income Annuities. Even though the agent is going to tell you, "I've got the one that's going to adjust for inflation, and it's perfect. This is the only one that you need to look at." Lying. I mean, flat out, Pinocchio lying. Annuity companies don't give anything away. They have big buildings for a reason. As my CEO says, they're building sports stadiums for a reason. A, they tell us when we're going to die, and B, they don't give anything away. If you're looking for a cost-of-living increase or CPI, Consumer Price Index type increase, you're like, "Well, inflation's happening, Stan The annuity man. We have to address it. We have to have an increase." We can do that. We can attach the cost-of-living adjustment increases to that income stream. But remember, annuity companies don't give that away. It's going to start at a lower level. Can we get you that? Yes, but it's not too good to be true because, spoiler alert, you already owned the best inflation annuity on the planet. Every single one of you reading this already owns an annuity. It's called Social Security, the best inflation annuity on the planet. And by the way, it's structured similarly and eerily. It's like a Deferred Income Annuity. The older you are, the higher the payment. I'll give you an example. This is a question I'm asking you, so lean in and answer. Would the Social Security payments be higher at age 65 or higher at age 70? Hold that answer. Hey, here's another one. Would the payments of a Deferred Income Annuity starting at age 65 be higher than if they were started at age 70? It's going to be higher. That's what you're saying. You're right. Why? Because it's about life expectancy, not interest rates. Interest rates play a secondary role. Do you hear me? Good.

Interest rates play a secondary role because it's all about life expectancy. You're transferring the risk, and in essence, the same with both Income Riders and Deferred Income Annuities. Now you might ask, "What if I outlive my life expectancy? Is the annuity company on the hook to pay as long as me and my spouse live? As long as we're breathing?" Both lifetime Income Riders and Deferred Income Annuities will be paid out for as long as you are breathing by the annuity companies. So, you say, "Wait a minute, Stan The Annuity Man. This has been great, and I've really enjoyed your crush velvet blue suit, but which one do I choose? Which one do I go with?" Good question. When you say, "Hey, I want to do an income later quote," we will quote for the highest contractual guarantee. Once those numbers come back in, whether it's an Income Rider or a Deferred Income Annuity, we're going to talk about the structure, the difference, the flexibility, and all that separates them. But at the end of the day, we will go with the highest contractual guarantee because why? You earn an annuity for what it will do, not what it might do. What's the will do? It's the policy's contractual guarantees, and with Income Riders and Deferred Income Annuities, these are contractual guarantees for income later. These are contractual guarantees for lifetime income insurance. These are contractual guarantees for retirement income insurance. And with that, I'll talk to you next time on the next Stan The Annuity Man blog.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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