Deferred Income Annuity

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jumppilot
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Deferred Income Annuity

Post by jumppilot » Mon Feb 12, 2018 6:24 pm

Does anyone here use a Deferred Income Annuity, offered by such firms as Brighthouse?

https://www.brighthousefinancial.com/co ... ochure.pdf

I'm in my late 30s and am in a fortunate position of reaching 415(c) limits. With left over money I'd like to purchase an annuity that will become active at around 60 or 65. I do not have a pension and would like to make small contributions to one of the legs of my stool while times are good.

Edit to add: When I'm retired I plan on having an annuity covering my expenses. I want that protection.

Fully funded emergency fund, drive used cars, etc etc.

Thank you!
Last edited by jumppilot on Mon Feb 12, 2018 6:28 pm, edited 1 time in total.

livesoft
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Re: Deferred Income Annuity

Post by livesoft » Mon Feb 12, 2018 6:27 pm

I don't have one, but I question whether they would be the best thing for a 30 year old. We invested tax-efficiently in our taxable accounts which has many advantages over a deferred income annuity.

One can always buy an annuity when they retire with the money they have in a taxable account. Vice versa won't work.

In an old 403(b) of mine, I have some TIAA Traditional Annuity which I suppose is a deferred income annuity of a sort.
Last edited by livesoft on Mon Feb 12, 2018 8:00 pm, edited 3 times in total.
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ralph124cf
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Re: Deferred Income Annuity

Post by ralph124cf » Mon Feb 12, 2018 7:51 pm

Insurance companies sell deferred income annuities. They then invest in bonds. You can see what long term bonds pay currently. You are essentially locking in current long term bond interest rates for the next thirty years.

Your own tax deferred investments "SHOULD" do much better than that,(no guarantees).

The deferred income annuity has zero liquidity, expenses that you pay, and profit to the insurance company, and possibly a commission to a salesman.

In your thirties, you can do better. In your sixties, this may be appropriate.

Ralph

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alec
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Re: Deferred Income Annuity

Post by alec » Mon Feb 12, 2018 8:42 pm

jumppilot wrote:
Mon Feb 12, 2018 6:24 pm

Edit to add: When I'm retired I plan on having an annuity covering my expenses. I want that protection.
Then why not invest the money in your 401(k) in bonds and buy a life annuity when you retire with some of the money from the 401(k)/IRA?
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

itstoomuch
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Re: Deferred Income Annuity

Post by itstoomuch » Mon Feb 12, 2018 8:48 pm

It's too early for you to think about this.
If you are worried, buy laddered CD's until you are closer to retirement.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

AlohaJoe
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Re: Deferred Income Annuity

Post by AlohaJoe » Mon Feb 12, 2018 9:03 pm

I guess I'll be one of the few to say that I don't think deferred annuities are an obviously bad decision.

However, immediate annuities in general aren't popular and deferred annuities haven't really been commercially available for very long, so you're unlikely to find many people who a) have them and b) have had them long enough to provide any actual feedback.

There is a fair amount -- though not universally agreed or decisive -- academic research on the benefits of deferred annuities. For instance, one paper concludes,
Results suggest DIAs [deferred immediate annuity] appear to offer significant promise to retirees as an efficient form of guaranteed income, especially given the relatively low cost for the longevity hedge when compared to SPIAs.

ralph124cf
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Re: Deferred Income Annuity

Post by ralph124cf » Mon Feb 12, 2018 10:30 pm

AlohaJoe wrote:
Mon Feb 12, 2018 9:03 pm
I guess I'll be one of the few to say that I don't think deferred annuities are an obviously bad decision.

However, immediate annuities in general aren't popular and deferred annuities haven't really been commercially available for very long, so you're unlikely to find many people who a) have them and b) have had them long enough to provide any actual feedback.

There is a fair amount -- though not universally agreed or decisive -- academic research on the benefits of deferred annuities. For instance, one paper concludes,
Results suggest DIAs [deferred immediate annuity] appear to offer significant promise to retirees as an efficient form of guaranteed income, especially given the relatively low cost for the longevity hedge when compared to SPIAs.
Note that the quote refers to retirees, not to 30 year olds. Yes, a 60 something may benefit from an annuity deferred to 80, but the same may not apply to a 30 something deferring to 80.

In ones 60s and 70s, there is a big boost in anticipated income from mortality credits. From 30 to 60, mortality credits are very minor.

Ralph

SpaceCowboy
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Re: Deferred Income Annuity

Post by SpaceCowboy » Tue Feb 13, 2018 3:01 am

The big (or real) issue with DIAs is that they don’t provide any inflation protection during the deferral period. Thus, when the payouts actually begin 30 years later in this case, what will that income stream really be worth.

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Top99%
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Re: Deferred Income Annuity

Post by Top99% » Tue Feb 13, 2018 8:10 am

SpaceCowboy wrote:
Tue Feb 13, 2018 3:01 am
The big (or real) issue with DIAs is that they don’t provide any inflation protection during the deferral period. Thus, when the payouts actually begin 30 years later in this case, what will that income stream really be worth.
That is indeed one big risk and another is 30+ years into the future the insurer may or may not be in business.
Adapt or perish

vested1
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Re: Deferred Income Annuity

Post by vested1 » Tue Feb 13, 2018 10:40 am

Top99% wrote:
Tue Feb 13, 2018 8:10 am
SpaceCowboy wrote:
Tue Feb 13, 2018 3:01 am
The big (or real) issue with DIAs is that they don’t provide any inflation protection during the deferral period. Thus, when the payouts actually begin 30 years later in this case, what will that income stream really be worth.
That is indeed one big risk and another is 30+ years into the future the insurer may or may not be in business.
I would contend that it is more of a certainty than a risk. The link provided by the OP is for a QLAC, which has a recently increased amount of 130k maximum. No COLA adjusted increase in monthly payout is available until monthly payback begins at age 65, but other options such as guaranteed return of premium and survivor benefits are, but at a significant reduction in the monthly payment.

So in regards to the highest payment, and unlike Clint Eastwood, you have to ask yourself "Do you feel lucky, punk?" No return of premium, no survivor benefit, die before age 65 or even before the initial premiums are repaid and your luck was not so good. For a 35 year old there are far better ways to build an annuity which will rise in value with inflation. Investing that money with an age and risk appropriate AA will do it.

jumppilot
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Re: Deferred Income Annuity

Post by jumppilot » Tue Feb 13, 2018 3:39 pm

Thanks for the replies, everyone.

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