Risk-averse investors have long turned to deferred income annuities to provide an income stream in retirement. In fact, while the overall annuity market has lagged since the 2008 market crash, DIAs have shined. Sales of nearly every other type of annuity declined in the first quarter of 2013, but investors poured nearly $400 million into DIAs — up 147% from the first quarter of 2012, according to Limra.
About 10 insurers now offer DIAs, Limra notes, and eight more are developing DIA products.
But there are pitfalls associated with DIAs, the Wall Street Journal’s Anne Tergesen warns. The most concerning of these stems from the requirement to surrender the principal to the insurer, which keeps the balance upon the owner’s death. To ensure that the balance goes to their heirs, most DIA owners elect to take a death benefit — an add-on that can reduce payouts by as much as 10%, negating much of an annuity’s advantage, Tergesen says. Investors might be better off by buying bonds, or buying an ETF or mutual fund and then purchasing an immediate annuity when they retire, when they can better judge their longevity and income needs.
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