Kimberly Foss calls them “tweeners.” But, no, she’s not referring to those legions of pre-teens who worship Justin Bieber. Instead of the baggy-pants one, Foss, CFP®, founder and president of Empyrion Wealth Management in Roseville, Calif., is talking about baby boomers, mostly in their 50s, who have been displaced from their jobs and are possibly entering a second career. At the same time, they are also contemplating retirement and how they will fund their golden years. “But they don’t have quite enough money for full retirement so they are looking for a way to get a guaranteed income but not take it right now,” Foss says.
Enter the latest hot product in the annuity world, the deferred income annuity, or DIA. In simplest terms, a baby boomer can buy a DIA at age 55, but not switch on the income spigot until he or she actually retires in, say, 10 years, or whatever start date a purchaser may choose.
Perhaps the best illustration of the typical DIA buyer is a 51-year-old client of Foss’s. After being downsized from her employer, she is now doing consulting work and living off taxable investments. Nevertheless, she wants to ensure a guaranteed income stream when she does fully retire. So she plowed $300,000 into a deferred income annuity that will give her a 5 percent payout beginning at age 65. “And she’ll get that for life,” Foss says.
Her client is not alone. In an otherwise muted annuity sales market, deferred income annuities are a growing, albeit still small, niche. In 2012, DIA sales reached $1 billion, according to LIMRA. In the fourth quarter, DIA sales hit $390 million, a jump of nearly 150 percent from the first quarter of last year when sales totaled $160 million.
In releasing those statistics, Joe Montminy, assistant vice president and director LIMRA annuity research, commented that more companies are entering the DIA market, hoping to target younger baby boomers between the ages of 45-59. Those consumers, he noted, collectively hold nearly $10 trillion in financial assets. “So we anticipate these products will continue to have remarkable growth,” Montminy stated.
The appeal of a deferred income annuity is that it gives the policyholder peace of mind that there will be a secure income stream (in addition to Social Security and possibly a pension) when they retire in a decade or so. In other words, they are handing over money now but won’t see any portion of those dollars until a later date. Doesn’t sound like something that would entice a generation accustomed to instant gratification, does it?
Ross Goldstein, director of marketing in the retirement and annuity division of New York Life, says his firm’s research indicates that consumers tend to draw up their retirement blueprint roughly five years before they exit the workforce for good.