Understanding Deferred Income Annuities (DIAs) & Lifetime Income Riders

As retirees face longer life expectancies and increasing financial uncertainty, having a reliable source of income throughout retirement is more important than ever.

Many are familiar with the concept of Social Security as a primary source of income in retirement. However, what if there was a way to create a similar, even more flexible, guaranteed income stream? One that is fully customizable and backed by insurance companies with solid financials and long-term viability?

Enter Deferred Income Annuities (DIAs) and Lifetime Income Rider (LIR) annuities are two assets that can work in a very similar way to Social Security. Both offer the same long-term income security, but with advantages that make them attractive alternatives or supplements to the traditional Social Security system.

How DIAs & Lifetime Income Riders Work

Both annuities work in a way similar to how Social Security works, making them powerful assets for retirees seeking stable, predictable income.

Deferral Period & Income Starting Date

Like Social Security, which allows you to begin taking payments as early as age 62 (with a reduction in benefits) or delay payments for a larger payout at age 70, DIAs and Lifetime Income Riders work by offering a deferral period.

With a DIA, you can defer the start of payments for a period of time (e.g., 5, 10, or 15 years), after which you begin to receive guaranteed lifetime income.

Similarly, Lifetime Income Riders (often attached to fixed or variable annuities) allow you to defer income until a future date, with the payout increasing the longer you wait—similar to the 8% deferral rate of Social Security. The longer you defer, the higher your guaranteed payout becomes.

Lifetime Income Guarantee

Just as Social Security guarantees a lifetime income, both DIAs and Lifetime Income Riders offer a lifetime income guarantee, ensuring you never run out of money regardless of how long you live. This is a key selling point, especially as retirees are concerned about longevity risk, or the risk of outliving their savings.

With a Lifetime Income Rider, the annuity is often structured so that you can receive income for both you and your spouse, providing joint and survivor benefits, just like Social Security.

The Customizable & Flexible Alternative to Social Security

While Social Security provides a fixed income stream based on your earnings history, Deferred Income Annuities and Lifetime Income Riders are customizable assets. Here's how these annuities enhance income flexibility:

Customization of Payout Dates & Amounts

DIAs and Lifetime Income Riders are fully customizable. You can choose the exact start date for your income (e.g., at age 70, 75, or even later), and many policies allow you to structure income increases over time.

Additionally, Lifetime Income Riders often come with inflation protection options, helping you keep pace with rising costs—something Social Security can struggle with, given its sometimes inadequate cost-of-living adjustments (COLA).

Spousal Benefits

Both types of annuities offer robust spousal benefits. In fact, many DIAs and LIRs allow you to structure the contract so that your spouse receives a guaranteed income for life, even if you pass away and often with 100% continuation of the income amount.

This is an attractive feature compared to Social Security, which can only provide benefits for one person (typically the higher earner) or a reduced amount for the surviving spouse.

Greater Control Over Your Income Strategy

Unlike Social Security, which dictates when and how much you receive based on your earnings record and age, DIAs and Lifetime Income Riders allow you to design your income strategy around your specific needs. For example, you might choose to begin income at a later age for higher payments or ladder multiple DIAs for staggered income streams at different ages.

The Stability of Insurance Companies vs. Social Security's Troubling Future

When comparing insurance-backed annuities to Social Security, the stability and reliability of the underlying financial institutions become an essential factor.

Social Security, as a government program, has long been a reliable source of retirement income. However, it faces significant financial strain. The system is currently trillions of dollars in debt, with projections showing it will become insolvent in the coming decades without significant reform. The future of Social Security remains uncertain, and some critics worry that retirees may not be able to count on it to the same extent in the future.

On the other hand, insurance companies that issue DIAs and Lifetime Income Riders are often in a stronger financial position. Many of the top-rated insurance companies (rated A or A+) have billions or even trillions of dollars in assets, and the annuity contracts are backed by their strong balance sheets. These companies must hold significant reserves to ensure they can meet their future obligations, making them highly reliable.

For example, AIG, Allianz, Nationwide, and New York Life are all A+ rated insurance companies with robust financials, meaning they are likely to fulfill their long-term income obligations. FIA products (Fixed Indexed Annuities) are often linked to the general account of the insurer, which has to meet certain solvency requirements, providing an added layer of security for retirees.

Creating a “Social Security-like” Ladder with DIAs

One of the key advantages of DIAs is the ability to create multiple, staggered income streams—similar to having several Social Security checks, but with more control and flexibility. By purchasing a series of DIAs with different deferral periods, you can essentially ladder your income, receiving guaranteed payouts at different stages of retirement.

This approach has several advantages:

• Guaranteed income at various ages: like having several “Social Security checks” that begin at different times, you can tailor your income needs as you get older.

• Flexibility in structuring: with DIAs, you can design a strategy that matches your exact income needs for each phase of retirement, offering greater flexibility than Social Security’s rigid structure.

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So, is a DIA and Lifetime Income Rider Right for You?

Well, ask yourself this simple question:

“If I could take a portion of the money I’ve set aside for retirement, and purchase all the income I need for the rest of my lifetime, on a guaranteed and insured basis with no downside risk, and so it actually gets bigger over time to help with inflation, does that sound appealing?”

If your answer is yes, then we invite you to take the educational journey and let us show you a visual example of exactly how a customized retirement income plan could work for you.