Deferred-income annuities are making their mark on the insurance world, shaping up as more than an esoteric niche product.
Since New York Life first introduced its DIA about two years ago, these annuities have quickly gained in popularity, growing to a $395 million market in the first quarter of 2013, which was 147 percent higher than the first quarter of 2012, according to new LIMRA research.
Simply put, it is a guaranteed life income product that people purchase later in life to hedge against their own longevity.
Investors typically purchase a DIA five to 20 years before they think they will need it so they can have a nice chunk of guaranteed income after the rest of their retirement savings has dried up.
The average purchase age for the GFIA is 58, with an average deferral duration of nine years. (Policyholders can postpone the start of their income payments for as short a time as two years or as long as 40.)
For that typical 58-year-old who places, say, $100,000 in the annuity today, he or she could expect a 10 percent payout, or $10,000 per year for life, starting at age 67. The policy also permits an owner to switch their start date one time, Goldstein notes.
More education has to take place in the marketplace before DIAs truly become a contender in the annuity marketplace, said Tope. “Advisors need to shift their practice to understand how they are going to do this income-planning, longevity-planning for clients,” he said.
It’s all about helping clients maximize what few retirement dollars they have.