What is a Deferred Income Annuity
Jason Stolz CLTC, CRPC
What is a Deferred Income Annuity? A Deferred Income Annuity (DIA) is an annuity that allows you to invest a lump sum today in exchange for guaranteed lifetime income that begins at a future date—often years later. This structure rewards patience by providing higher monthly payments the longer you defer, making DIAs one of the most powerful tools for creating future retirement income certainty.
At Diversified Insurance Brokers, we help clients compare income projections from more than 100 top-rated insurance carriers. Our goal is to find the right balance of guaranteed growth, timing flexibility, and income security—especially for those planning several years ahead of retirement.
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How a Deferred Income Annuity Works
A Deferred Income Annuity provides future guaranteed income by locking in payout factors today. You choose when you want payments to start—often between 2 and 40 years in the future. During the deferral period, your annuity’s income base grows, and the eventual payout rate increases as your start date gets closer. Once income begins, it continues for life or a set period depending on the option you select.
The deferred design makes DIAs popular among those still working or within 5–15 years of retirement. It’s also a strong option for those concerned about longevity risk and seeking protection against outliving their savings.
Immediate vs. Deferred Income Annuities
- Immediate Annuity (SPIA): Income begins within 12 months of purchase. It’s best for people who need income now.
- Deferred Income Annuity (DIA): Income starts later—often 5, 10, or 20 years out. Deferring allows your future income to grow significantly.
The longer you defer income, the greater your guaranteed payout, since the insurer assumes a shorter payout window and credits additional deferral growth factors.
Key Advantages
- Guaranteed Lifetime Income: Provides predictable, guaranteed cash flow starting at a future date.
- Longevity Hedge: Protects against outliving your savings.
- Custom Start Date: Choose the exact month or year to begin payments.
- Higher Payouts Over Time: Deferred start means larger monthly payments later.
- Tax Deferral: Growth inside the annuity is tax-deferred until income begins.
Considerations Before Buying
- Liquidity: Funds are committed during the deferral period; access is limited before income begins.
- Inflation: Standard payments are fixed; optional COLA riders can help maintain purchasing power.
- Planning Horizon: A DIA is best suited for those with sufficient assets to cover short-term needs until payments begin.
Tax Treatment
Qualified DIAs (purchased with IRA or 401(k) funds) grow tax-deferred, and payouts are fully taxable when received. Non-qualified DIAs use the exclusion ratio to divide payments into principal and earnings, reducing taxable income each year. In certain cases, Qualified Longevity Annuity Contracts (QLACs) allow IRA or 401(k) funds to be deferred past required minimum distribution (RMD) age, up to IRS limits.
Who Should Consider a Deferred Income Annuity?
- Individuals in their 50s or early 60s planning for income in later retirement years.
- Those with pensions or Social Security starting later and wanting to fill future gaps.
- Investors who value guaranteed income more than market-based growth.
- Couples seeking to protect lifetime income for both spouses.
By incorporating a DIA into your retirement plan, you can create a guaranteed income “floor” that activates when you need it most—reducing portfolio withdrawals and protecting long-term sustainability.
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FAQs: Deferred Income Annuity
When do payments from a Deferred Income Annuity begin?
You select the start date—usually 2 to 40 years in the future. The longer the deferral, the higher your eventual guaranteed payout.
Can I access funds before income begins?
Typically, no. Funds are locked during the deferral period. Some contracts allow limited withdrawals or commutation features, but they reduce future income.
What happens if I pass away before payments start?
If you choose a refund or period-certain option, your beneficiary will receive a lump sum or continued income. Life-only options end with no residual value.
Can I add inflation protection?
Yes. Some DIAs offer cost-of-living adjustments (COLA) or increasing income options to help offset inflation during retirement.
Are DIAs available within IRAs or 401(k)s?
Yes. Qualified Longevity Annuity Contracts (QLACs) allow you to defer income and delay required minimum distributions on a portion of your IRA or 401(k) balance.
About the Author:
Jason Stolz, CLTC, CRPC, is a senior insurance and retirement professional with more than two decades of real-world experience helping individuals, families, and business owners protect their income, assets, and long-term financial stability. As a long-time partner of the nationally licensed independent agency Diversified Insurance Brokers, Jason provides trusted guidance across multiple specialties—including fixed and indexed annuities, long-term care planning, personal and business disability insurance, life insurance solutions, and short-term health coverage. Diversified Insurance Brokers maintains active contracts with over 100 highly rated insurance carriers, ensuring clients have access to a broad and competitive marketplace.
His practical, education-first approach has earned recognition in publications such as VoyageATL, highlighting his commitment to financial clarity and client-focused planning. Drawing on deep product knowledge and years of hands-on field experience, Jason helps clients evaluate carriers, compare strategies, and build retirement and protection plans that are both secure and cost-efficient.
