Deferred Income Annuity - Pros And Cons

Today, we’re diving into Deferred Income Annuities (DIAs)—the benefits, the limitations, and how they might fit into your retirement plan. Like every annuity type, there’s no perfect product. My goal is to lay out the facts so you can make an informed decision.

What Is a Deferred Income Annuity?

A Deferred Income Annuity is an “income later” guarantee. It locks in a future payment amount to begin at a start date you choose—anywhere from 13 months to 45 years after the purchase date. Some people refer to them as longevity annuities because they help protect against the risk of outliving one's money. Payments are contractually guaranteed and can be set for your lifetime or for the lifetime of you and your spouse.

Think of it like Social Security: the longer you delay the start, the higher the payout. DIAs can work alongside other income streams to help build your income floor—the guaranteed amount coming in every month, unaffected by market swings.

The Benefits of a Deferred Income Annuity

1. Contractual Guarantees

Once you sign the contract, the payout is guaranteed, regardless of what happens in the markets or the economy. You’ve transferred the risk to the annuity company.

2. Flexible Start Date

With most contracts that aren’t life-only, you can change the start date one time after purchase. Life changes, and DIAs give you the flexibility to adapt.

3. Customizable Structure

You can design the contract to fit your goals. Want to ensure beneficiaries inherit unused funds? You can structure it that way.

4. Works With Different Account Types

DIAs can be purchased with IRA, non-IRA, or Roth IRA funds. (Note: If using a traditional IRA, special rules apply if deferring past 70½—see my video on Qualified Longevity Annuity Contracts.)

5. Laddering for Income Planning

You can split your purchase into multiple contracts with different start dates to create income streams at various points in retirement. This helps spread out payouts and offers flexibility.

The Limitations of a Deferred Income Annuity

1. Rigid Contracts

Once income starts, it continues—no stopping it, no lump-sum cash-out.

2. No Market Growth

DIAs are not investments. There’s no trackable interest rate during deferral. The trade-off? The longer the annuity company holds your money, the more they’ll pay you when income begins.

3. Opportunity Cost

Some people feel they could earn more in the markets, but remember—this is an apples-to-oranges comparison. DIAs are about guarantees, not chasing returns.

4. No Liquidity

These contracts are meant for income, not for emergency withdrawals.

How Pricing Works

Payments are based primarily on life expectancy at the time income starts, with interest rates playing a secondary role. The income stream is a combination of return of principal plus interest. You can add a Cost-of-Living Adjustment (COLA) to increase payments annually, but it will lower your initial payout. Always have us quote both with and without COLA before making a decision.

How to Get a Quote

We quote all carriers—no favorites. Quotes change every 7–10 days (like a gallon of milk), so if you want a specific payout, you’ll need to lock it in. Tell us your goal—either “How much income can this lump sum buy?” or “How much will it cost to get this monthly income?”—and we’ll run the numbers.

Where DIAs Fit in Your Portfolio

If you don’t need future income, you don’t need a DIA. If you do need it for yourself, a spouse, or both, they can be a powerful way to guarantee that income stream. They are best suited for individuals seeking to secure future payments without concern for market volatility.