Category: Deferred Income Annuities

If you’ve been reading Retirement Income Visions™ and my RetireMentors MarketWatch column, you know that I’ve written extensively about the use of fixed income annuities as a retirement income planning strategy.

Fixed income annuities are a natural fit as part of a retirement income plan. They provide a predictable sustainable income stream that can be customized to meet current and projected financial needs.

An important, although unpublicized, benefit of fixed income annuities is protection against elder fraud. Earlier this year, the FBI brought charges against 250 subjects who collectively victimized more than one million mostly elderly Americans. The criminals who were charged caused losses exceeding $600 million.

Two of the three types of fixed income annuities – single premium immediate annuities (SPIAs) and deferred income annuities (DIAs) – offer the greatest protection against elder fraud. Fixed index annuities (FIAs) with income riders aren’t as effective for this purpose due to their accumulation value.

SPIA and DIA Basics

When you purchase a SPIA or DIA from a life insurance company, you receive a contract that includes confirmation of your initial, and, in the case of a SPIA, only premium. The contract also includes your income start date and payment frequency, amount, and duration.

Income payments from SPIAs generally begin one month after purchase and continue for life. The income start date for DIAs is at least 12 months after the purchase date, with term certain or lifetime payments, depending upon the terms of the contract. For both SPIAs and DIAs, there are various lifetime payment options available to provide for either an extension of income payments or payment of a lump sum to named beneficiaries in the event of premature death.

No Investment Account to Raid

With SPIAs and DIAs, there’s no investment account that can be raided by a fraudster. Premiums are held in the life insurance company’s general account. Aside from confirmations of premiums and associated income amounts, there are no investment statements.

Although the present value of the future income stream of SPIAs and DIAs can be calculated, it’s generally excluded from a personal net worth statement.

Secure but Illiquid

SPIAs and DIAs are a promise by a life insurance company to make periodic income payments to an annuitant, who is usually the contract owner, for a specified length of time in exchange for receipt of one or more premiums. Since the life insurance industry is heavily regulated, payments are secure subject to each company’s claims paying ability.

Other than periodic income, which is generally paid monthly, annuitants are unable to request withdrawals from SPIAs and DIAs. As such, their investment is illiquid. This is a highly attractive feature when it comes to elder fraud protection.

Payment Amounts Minimize Risk of Elder Fraud

Since income from SPIAs and DIAs is generally paid monthly over one’s lifetime, individual payments are typically small relative to premiums and are further reduced by income tax withholding. Consequently, the risk of elder fraud is minimized.

Assuming that payments are deposited into a checking account, frequent comparison of transactions and reconciliation of checking account balances to online transactions and statements, respectively, will reduce the possibility of theft.

Electronic Payments Enhance Protection

The option to have fixed income annuity payments electronically deposited into one’s checking account should be chosen whenever possible. Paper checks present opportunities for fraud from the moment they’re mailed by an insurance company until they’re deposited in one’s checking account.

Electronic payments have a high degree of security. Timing is predictable since fixed income annuity payments are made on a specified day of each month, quarter, or year in accordance with the contract terms.

Peace of Mind

Assuming that there’s no fraudulent activity related to premium payments, SPIAs and DIAs are well-suited for providing ongoing protection against elder fraud. Absence of an investment account, payment security, illiquidity, relatively small payment amounts, and electronic payments provide this safety.

These same features are also inherent in Social Security. SPIA and DIA owners who understand this generally have peace of mind from their initial purchase until receipt of the final income payment.

Do you own any investments that offer all of the following five benefits?:

• Guaranteed lifetime income payment beginning at a future date chosen by you
• Return of your investment if you die before income start date
• Income payments can be insured for a specified number of years or until original investment has been returned
• Nontaxable until income start date
• 25% to 65% of each income payment excluded from taxation

There’s only one type of investment that offers all five advantages – a nonqualified, or nonretirement, deferred income annuity, or DIA. The first four benefits, which are individually and collectively very attractive as part of a retirement income planning strategy, are also provided by qualified, or retirement plan, DIAs. Unlike nonqualified DIAs, however, qualified DIA income distributions, including those from qualified longevity annuity contracts, or QLACs, are fully taxable.

Deferred Income Annuities vs. Single Premium Immediate Annuities

Benefit #5, exclusion of a portion of each income payment from taxation, is provided by nonqualified single premium immediate annuities (SPIAs) as well as DIAs. SPIAs can be an appropriate retirement income planning solution if you’re about to retire or are already retired and have an immediate need for sustainable lifetime income. With a SPIA, income distributions begin one month after purchase assuming a monthly periodic payment and no later than one year after purchase if you opt for annual payments.

Although they aren’t as prevalent in the marketplace, DIAs are a more appropriate retirement income planning strategy than SPIAs in most situations due to their deferred income start date. Whether you’re 40 years old and won’t be retiring for 25 years or you’re 65 and want to defer your income start date for five or more years, one or more DIAs can meet your need. Deferral of your income start date increases the amount of your periodic income payment since the insurance company will be making payments to you for a shorter period of time.

Exclusion of Portion of Each Income Payment from Taxation

DIAs and SPIAs offer a unique income tax advantage when they’re purchased as a nonqualified asset vs. inside a retirement plan. A portion of each income payment, generally in the range of 25% to 65%, is excluded from taxation.

How does this work? When you receive income payments from an annuity, in addition to earnings, you’re receiving a return of your premium, or investment. Any time that you receive a return of a nonqualified investment, this is considered to be your cost, or basis, and is nontaxable.

The amount of your income payment that’s nontaxable is determined using an “exclusion ratio.” This is calculated by dividing the investment in the annuity contract by the total expected lifetime payments in the case of a lifetime DIA. The latter is an actuarial calculation based on the life expectancy of you and a joint annuitant if applicable.

As an example, let’s say that you invest $100,000 in a lifetime DIA and your expected lifetime payments are $150,000. 66.7 percent ($100,000 divided by $150,000) of each payment will be tax-free until you receive $100,000. Once your payments total $100,000, 100% of each of your additional payments will be fully taxable.

Taxable Amount Determined by Purchase and Income Starting Ages

How is the taxable portion of each nonqualified DIA or SPIA payment determined? The younger you are when you purchase your DIA or SPIA and the longer you defer your income starting age in the case of a DIA, the greater the taxable percentage of each payment. Although, as stated earlier, you will increase the amount of each of your income payments with a DIA the longer you defer your income start date, you will also increase the taxable percentage.

The best way to illustrate this is with an example. Using actual payouts from a highly-rated life insurance company’s current lifetime deferred income annuity offering, the following is a table showing the taxable percentage of each monthly income payment assuming the following eight parameters:

1. Male and female joint annuitants.
2. Male is three years older than female.
3. Male purchase age varies in increments of five years from 45 to 60.
4. Female purchase age varies in increments of five years from 42 to 57.
5. Male income starting age varies in increments of five years from 65 to 75.
6. 100% of income continues upon death of first annuitant.
7. Return of premium in the event of the death of both individuals prior to the income payout starting date whereby beneficiaries will receive 100% of the original investment.
8. 10-year certain payout in the event that both individuals die after payments begin and before 10 years of payments have been distributed. The annuitants’ beneficiaries would continue to receive payments for the remainder of the 10 years.

Per the table, the taxable portion of each payment ranges from 38.3% to 73.7% (26.3% to 61.7% is nontaxable) depending upon purchase and income starting ages. Assuming an investment of $100,000, the monthly lifetime income payments range from $510 assuming a male purchase age of 60 and male income starting age of 65 to $1,707 assuming a male purchase age of 45 and male income starting age of 75. The annual lifetime and taxable payment amounts would be as follows for these two extremes:

Male purchase age of 60 and male income starting age of 65:

Total annual payments:                         $6,117
Total taxable annual payments:           $2,343 (38.3% x $6,117)

Male purchase age of 45 and male income starting age of 75:

Total annual payments:                         $20,487
Total taxable annual payments:           $15,099 (73.7% x $20,487)

Unique Tax-Favored Sustainable Income Strategy

If you have a sustainable income need and it isn’t immediate, one or more nonqualified deferred income annuities, or DIAs, can provide a unique tax-favored solution. While this post addresses lifetime DIAs, you can also purchase term, or period certain, DIAs that provide income streams for a specified number of months or years. This is a more sophisticated strategy that can be used to meet projected changing retirement income needs in different stages of retirement.

Finally, an inflation factor can be applied to DIA and SPIA income payments that will increase the amount of each payment each year. This will, however, reduce the initial payment amount accordingly.

The basic purpose of a retirement income plan is to develop tax-efficient strategies that are designed to provide predictable income streams to meet an individual’s or family’s financial needs during different stages of retirement.

A comprehensive plan should also include provisions for addressing potential life-changing experiences. One such event that’s generally associated with the latter stage of retirement is cognitive impairment.

As pointed out in the Center for Retirement Research of Boston College’s (CRR) January article, Cognitive Aging and the Capacity to Manage Money, most people who experience normal cognitive aging can manage their money in their 70s and 80s. This includes bill paying and evaluating an investment’s potential return relative to risk. Per the article, there are two situations that are problematic:  (1) financial novices and (2) individuals with cognitive impairment.

Financial Novices

While those with financial knowledge are generally able to manage their money in their later years, it’s much more challenging for individuals who haven’t acquired the requisite knowledge and experience needed to perform this task. These financial novices, who are often women, tend to be surviving spouses or individuals whose spouse has become incapacitated.

People who take on this role will either need informal help from a family member or formal assistance depending upon their depth of financial knowledge. The good news, according to the CRR study, is that most financial novices who aren’t cognitively challenged “will eventually gain enough knowledge to handle most financial matters without help.”

Individuals with Cognitive Impairment

Individuals in their 70s and 80s can often develop mild cognitive impairment (MCI) and ultimately severe dementia which is common in one’s 80s and 90s. According to a recent study cited in the CRR article, 95 percent of participants without any cognitive impairment were capable of managing their finances. This dropped to 82 percent of adults with MCI and 20 percent of adults with dementia.

Interestingly, individuals with cognitive impairment are often unaware that they’re not in control of their faculties, including their ability to manage their finances. Per the CRR article, “several studies have shown that people with MCI to full-blown dementia continue to feel confident about handling financial matters.” Given the fact that many of these individuals rely on a caregiver, this subjects them to the risk of financial abuse by the caregiver.

Simplify Investment Management

Although it can be challenging, surviving spouses and spouses of incapacitated individuals who don’t have the knowledge and experience of managing finances can eventually acquire the requisite information and skills to do so. It’s a much different story, however, for those with MCI and dementia.

Financial tools that are often used for retirement income planning include immediate and deferred fixed income annuities.  Both can fulfill the basic purpose of a retirement income plan as stated at the beginning of this article:  develop tax-efficient strategies that are designed to provide predictable income streams to meet an individual’s or family’s financial needs during different stages of retirement.

Immediate and deferred fixed income annuities can also eliminate the financial management challenges associated with cognitive impairment. Unlike a diversified investment portfolio that requires ongoing management, there are generally no significant financial decisions that need to be made with a fixed income annuity during one’s lifetime once an income start date is selected.

The income start date will vary depending upon the type of fixed income annuity as follows:

• Immediate annuity: Generally one month after date of purchase
• Deferred income annuity: Contractually set at the time of purchase with some contracts offering flexible start dates within a specified range before and after the contractual start date
• Fixed index annuity with income rider: Totally flexible with most contracts requiring a one-year waiting period after the contract date

Develop an Extended Care Plan

Extended care should be a focal point of a retirement income plan. Strategies will vary with each household, depending upon medical history, marital status, potential extended family involvement, and financial knowledge and experience.

As discussed in my October 10, 2016 MarketWatch RetireMentors article, Make Sure You Have a Long-Term Care Plan in Place Before It’s Too Late, an extended, or long-term care, plan addresses various physical and mental changes that occur as we age. It includes specific steps that will be performed by family members and other individuals to manage the various changes when they occur. An extended care plan doesn’t necessarily have to include long-term care insurance.

Plan for Cognitive Impairment

Given the possibility and increasing occurrence of MCI and dementia, it’s important that informal and formal planning for these cognitive impairments begins long before they are likely to occur. As a general rule, the earlier that planning is done, the more options will be available to implement solutions to manage cognitive challenges when they materialize.

With the Dow Jones Industrial Average (DJIA) crossing the elusive 20,000 barrier last Wednesday for the first time, a lot of people are excited about investing in the stock market. Never mind the fact that the DJIA has tripled in price from its low of 6,470 on March 6, 2009, increasing at a mind-boggling average annual rate of return of 40% for the last eight years.

If you have an aggressive portfolio and are within 15 years of retiring, you need to protect it from a sizable decline. When the Dow lost 52% in 17 months between October 1, 2007 and March 6, 2009, no one saw it coming. A lot of people who were planning on retiring in 2008 and 2009 were forced to postpone retirement.

Given the stock market’s unsustainable climb in the last eight years and the associated possibility of a significant market correction, it makes sense to insure your investment strategy. Assuming a portfolio of at least $500,000, one of the best ways that you can do this is by allocating 20% to 25% to one or more deferred fixed income annuities.

Aggressive Portfolio With No Income Protection Plan

Let’s assume that you’re 58, single, are planning to retire in 10 years, and you have an aggressive portfolio with a value of $1 million. Let’s take a look at two scenarios:

1. Your portfolio declines 50% over the next 17 months.
2. Your portfolio increases 10% over the next two years and then declines 50% over the next 17 months.

In scenario #1, the value of your portfolio has decreased from $1 million to $500,000 at the end of 17 months. In scenario #2, the value of your portfolio has increased from $1 million to $1,210,000 before decreasing to $605,000 17 months later.

You would probably agree that whether the value of your portfolio is 50% or 60% of its initial value, this doesn’t bode well for your retirement planning. It will take a long time for you to recover your loss. You’re also getting closer to your planned retirement date. Furthermore, your portfolio isn’t designed to provide you with any predictable retirement income.

Aggressive Portfolio With Income Protection Plan

Let’s suppose instead that you decide to insure your $1 million portfolio from a potential market decline by transferring 20%, or $200,000, into a deferred income annuity offered by a highly-rated life insurance company that will pay you lifetime income beginning when you retire in 10 years.  The life insurance company will also pay (a) a death benefit of $200,000 to your beneficiaries if you die before your income start date or (b) up to 10 years of payments to you and your beneficiaries if you die within the first 10 years after your income start date.

In scenario #1, the value of your remaining portfolio of $800,000 has decreased to $400,000 at the end of 17 months. In scenario #2, the value of your portfolio has increased from $800,000 to $968,000 before decreasing to $484,000.

By transferring $200,000 into a deferred income annuity, you have reduced your portfolio loss by $100,000 or $79,000, depending upon the scenario as follows:

1. Scenario #1: Investment portfolio of $400,000 + deferred income annuity of $200,000 = $600,000 vs. $500,000 with no income protection plan
2. Scenario #2: Investment portfolio of $484,000 + deferred income annuity of $200,000 = $684,000 vs. $605,000 with no income protection plan

In addition to reducing your portfolio loss, by transferring $200,000 into a deferred income annuity, you will receive annual income of approximately $20,000 for the rest of your life beginning at age 68 no matter what the stock market does. If the investment source is nonqualified funds, approximately 50%, or $10,000, of your annual income will be nontaxable.

Insure Your Portfolio

I believe that the 20,000 Dow is more than just a milestone given the breakneck pace at which it was achieved assuming that your reference point is March 6, 2009. It is instead a wake-up call for anyone with an aggressive portfolio who is within 15 years of retiring who doesn’t currently own any fixed income annuities. If this describes your situation, now is the time to income-proof your portfolio before the next major downturn when you’re that much closer to your planned retirement date.

Single premium immediate annuities (SPIAs) and deferred income annuities (DIAs) are often used to provide sustainable lifetime income to replace a portion of employment income in retirement.  Both are tax-favored when nonretirement funds are used to purchase them since a portion of each income payment is a nontaxable return of principal.

The primary difference between a SPIA and a DIA is the annuity commencement, or income start, date. In the case of SPIAs, it is one month after purchase assuming a monthly payment frequency. With DIAs the income start date is a contractually defined date at least 12 months from the date of purchase. The longer the deferral period, the greater the periodic payment will be.

SPIA and DIA Income Payment Parameters

The periodic income payment amount for both SPIAs and DIAs is dependent upon several parameters, most of which are elective. These include:

• Annuity type: single or joint life
• Joint type in the case of joint life: reducing or non-reducing
• Birth date(s)
• Purchase date(s) (dates in the case of DIAs that allow multiple purchases)
• Premium amount(s) (amounts in the case of DIAs that allow multiple purchases)
• Income start date
• Payment frequency, i.e., monthly, quarterly, etc.
• Return of premium option in the case of DIAs
• Income payment option

The last parameter, income payment option, can make a huge difference in the total amount of payments in the event of premature death. I’m using “premature death” to refer to death occurring prior to the annuitant receiving at least ten years of income payments.

Lifetime Income Payment Options

While DIAs can be purchased for a fixed term, e.g., five or ten years, DIAs and SPIAs are usually purchased for lifetime income. There are four lifetime income payment options to choose from when purchasing DIAs and SPIAs, all beginning on the annuity commencement date, with the following differences in the event of death:

• Life only: Payments end.
• Life with cash refund: Difference between the sum of lifetime income payments and premium payments is paid to the beneficiary(ies) in one lump sum.
• Life with installment refund: Difference between the sum of the lifetime income payments and the premium payments will continue to be paid to the beneficiary(ies) until the sum of the income payments equals the premium payments.
• Life with period certain: Income payments will be paid to the annuitant(s) and/or beneficiaries for a fixed number of years, usually 10 to 30, in the event that death occurs prior to the period certain.

The life only income payment option generally provides the largest periodic payment amount due to the fact that payments end upon death. Although this is the least risky option for an insurance company, it is the most risky for an annuitant.

As an example, suppose that you’re single and you purchase a SPIA that pays lifetime monthly income of $1,000 beginning one month from today. After receiving three months of payments, or a total of $3,000, you have a heart attack and die. The insurance company has fulfilled its obligations to you and there will be no additional payments.

Life Only vs. Life with Period Certain

Whether you’re considering a SPIA or a DIA, a life with period certain payment option is often the best choice. As previously stated, the number of years you can choose generally ranges from 10 to 30. The longer the period certain, the smaller will be the periodic payment amount.

While there will be a sizable reduction in the periodic payment amount with both the life with cash refund and life with installment payment options due to the guarantee that at least 100% of premium payments will be returned, it will generally be insignificant for a 10-year certain vs. life only payout. This is true whether you’re looking at a SPIA or a DIA.

To illustrate this, I prepared quotes for all of the SPIAs and DIAs available through my life insurance agency for a non-reducing joint life contract for a husband and wife issued in California on July 19, 2016 with a premium of $200,000 with the following additional parameters:

1. SPIA: primary annuitant (male) birth date of April 20, 1946 (age 70), secondary annuitant (female) birth date of June 10, 1949 (age 67), and income start date of August 19, 2016 (one month from purchase date).
2. DIA: primary annuitant (male) birth date of April 20, 1961 (age 55), secondary annuitant (female) birth date of June 10, 1964 (age 52), and income start date of July 19, 2031 (15 years from purchase date).

SPIA Example

The average monthly payment for 11 SPIAs with a life only payment option was $889.53, or $1.51 greater than the average monthly payment of $888.02 for the same 11 SPIAs with a 10-year certain payment option. Using the average monthly payment, ten years of payments totaling $106,562.40 ($888.02 x 12 months x 10 years) can be guaranteed by choosing a 10-year certain payout vs. potential payments of $0 if you instead choose the life only option and you die before the first payment is distributed.

DIA Example

When you purchase a DIA, in addition to the income start date, there’s one other important choice you need to make – purchase with or without a return of premium. Although I ran the DIA quotes with and without this additional parameter, the difference in monthly payment amounts was also insignificant.

Given the fact that (a) the income payment begins on the annuity commencement date and, (b) by definition, there will be a period of at least one year, and usually much more, between the purchase date and the income payment date whenever you purchase a DIA, your beneficiaries will receive nothing from the insurance company in the event that you, and another individual in the case of joint annuitants, die before the annuity commencement date unless you include a return of premium feature. Assuming this is part of your contract, your beneficiary(ies) will receive 100% of your premium payments in the event that you, and another individual in the case of joint annuitants, die before the annuity commencement date.

Whether or not a return of premium feature is included in your contract, the difference in monthly payment amount for a DIA is generally insignificant. I ran five DIA quotes with no return of premium and three with this option. The average monthly life only payment for the five without a return of premium was $1,416.98, or $13.76 greater than the average monthly payment of $1,403.22 for the same five with a 10-year certain payment option. The average monthly life only payment for the three that include a return of premium was $1,434.37, or $10.24 greater than the average monthly payment of $1,424.13 for the same three with a 10-year certain payment option.

Using the average monthly payment, ten years of payments totaling $168,386.40 ($1,403.22 x 12 months x 10 years) is guaranteed with no return of premium, and $170,895.60 ($1,424.13 x 12 months x 10 years) with a return of premium by choosing a 10-year certain payout vs. $0 if the life only option is chosen instead. In addition, the annuitants’ beneficiary(ies) would receive a return of the premium of $200,000 in the event both spouses die before the annuity commencement date of July 19, 2031 if a return of premium feature is included.

Four Takeaways

There are four takeaways from this post:

1. Never choose a life only income payment option when purchasing SPIAs or DIAs unless you have no potential individual or charitable beneficiaries.
2. There will be an insignificant reduction in the periodic payment amount with a 10-year certain vs. a life only payment option.
3. While you, your spouse, and/or your beneficiaries may not receive income payments equal to 100% of your premiums in the event of premature death, the total payments will be much greater with a 10-year certain vs. life only payment option.
4. Always include a return of premium feature when purchasing DIAs unless you have no potential individual or charitable beneficiaries .

Deferred income annuities, or DIAs, are one of the two types of deferred fixed income annuities sold by life insurance companies, the other being fixed index annuities, or FIAs, with income riders. DIAs are the simpler of the two products to understand and are often the most suitable choice in many situations.

A DIA is an annuity from which a periodic payout begins at least 12 months after the date of purchase in exchange for a lump sum or series of periodic premiums. The payout can be for a term certain or lifetime, depending upon the terms of the annuity contract.

Optimize Income Payment for Desired Start Date with Smallest Investment

Assuming that deferred sustainable lifetime income is your objective, you should always optimize your periodic income payment, using the smallest premium, or investment amount, to receive the largest payout beginning when you will need your income whenever possible. Equally important, you should only work with highly-rated life insurance companies that specialize in fixed income annuities.

Optimization of income needs to be driven by your targeted income start date and projected ongoing retirement income needs. Although most DIAs have a fixed income start date, some do offer flexibility, allowing income to begin within a specified number of years before or after their contractual start date. Multiple, or laddered, DIAs with different income start dates can also provide you with income start date flexibility.

Balance Income Optimization with Death Benefit Guarantees

Income optimization needs to be balanced with death benefit guarantees. There are two types, both of them optional:  pre-income payout and post-income payout. A maximum periodic income payment will always be generated when there are no pre- or post-payout death benefit guarantees. Likewise, pre- and post-income payout options will result in reduced payments when they’re added to a DIA contract.

If you purchase a DIA at age 50 with lifetime income beginning at age 65 with no pre- or post-payout death benefit guarantees and you die at 64, the life insurance company will retain 100% of your investment plus all earnings to date. There will be no payout to your beneficiaries. If you have absolutely no heirs or charities to which you want to leave assets or income, this may not be important to you.

Pre-Income Payout Death Benefit

If there are potential beneficiaries, you should always include a pre-payout death benefit as part of your DIA contract.  This is also known as a “return of premium” feature due to the fact that the amount of the death benefit will equal the amount of premiums paid.

While your beneficiaries won’t receive any earnings, they will at least receive the amount that you invested in your annuity contract in the event that you die before receiving any income payments. Your income payment will generally be slightly smaller if your contract includes a return of premium feature.

Post-Income Payout Death Benefit

Assuming that you survive to your income start date, your periodic income payment will begin and will continue until the end of your life or your life and your beneficiary’s life if you have a joint and survivor annuity. This will generally be the case for married couples.

Whether you have a single- or joint-life annuity, you can include an optional post-income payout death benefit guarantee that will ensure that you and your beneficiaries will receive a minimum amount of income from your contract.  This is typically accomplished with a term certain of five to thirty years.

Similar to a pre-income payout death benefit, inclusion of a post-income payout death benefit will reduce the periodic payout amount that you will receive. The amount of the reduction is usually relatively small when you compare the total minimum guaranteed payout with a post-income payout guarantee to one without.

I recently analyzed and compared DIA illustrations for a married client that included a return of premium feature. One illustration also included a 10-year certain post-income payout and the other was for 20-years certain. The following are the annual and guaranteed minimum joint-life payouts beginning 13 years from purchase assuming an investment of $300,000:

Given the fact that my clients have two pre-college age children and the annual income with the 20-year certain payout of $32,693 is only $1,764 less than the 10-year certain payout amount of $34,457 and the guaranteed minimum payments of the 20-year payout of $653,860 are $309,290 greater than the payouts of $344,570 with the 10-year certain payout, the 20-year certain payout was an obvious choice.

In summary, when evaluating deferred income annuities, while optimization of income payouts is the primary goal, this needs to be balanced with optional pre- and post-income payout death benefit guarantees. This will ensure a maximum payout for the annuitants as well as for potential beneficiaries.