DIA
A Deferred Income Annuity (DIA) is a contract that converts a premium today into guaranteed income beginning at a future date, typically 5 to 20 years later. The deferral period earns no current income but allows the carrier to invest the premium and apply mortality credits, producing a substantially higher future income than a SPIA purchased at the deferral end date. DIAs are the longevity insurance form of an annuity: they pay nothing if the consumer dies during the deferral period (unless a return-of-premium feature is added) but pay above-market income if the consumer lives to the deferral end and beyond.
A 65-year-old places $100,000 in a DIA scheduled to begin income at age 80. The deferral period is 15 years. The carrier guarantees monthly income of approximately $2,200 starting at age 80, for life. By comparison, a 65-year-old purchasing a SPIA today receives approximately $605 per month. The DIA produces 3.6x the monthly income — at the cost of 15 years of waiting and the risk of dying before age 80 with no payments received.
Why it matters
DIAs solve a specific retirement planning problem: late-life income for consumers who have enough current income but worry about outliving their savings. A small portion of savings allocated to a DIA can dramatically reduce the income floor risk at advanced ages, allowing more aggressive (or more generous) management of the remaining portfolio during early and mid retirement.
How to evaluate
Compare the monthly income at the deferral end across carriers. Consider whether to add a return-of-premium feature (which returns the unused premium to the beneficiary if the consumer dies during the deferral period) — it reduces the monthly income by 10-20% but eliminates the "lose everything" scenario. The income amount and start date are typically fixed at issue but some contracts allow date acceleration.
In the contract
Key terms: "deferral period," "income start date," "monthly income amount," "joint annuitant" (if applicable), and any optional features such as return of premium, cost-of-living adjustment, or commutation (rare, allows the consumer to convert the future income stream back to a lump sum).
Related terms
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