FIAs With Income Riders vs. DIAs:  Which is Right for You? – Part 1 of 5

FIAs With Income Riders vs. DIAs: Which is Right for You? – Part 1 of 5

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Judging by the number of recent posts regarding fixed index annuities (“FIAs”) with income riders, is it obvious that I’m excited about the use of this strategy as a potential piece of the retirement income planning puzzle solution? While FIAs with income riders can be used to provide guaranteed (subject to the claims paying ability of individual life insurance companies) lifetime income beginning at a future date, they aren’t the only fixed income annuity game in town.

As stated in the April 30, 2012 post, Target Retirement Income to Match Your Financial Needs, a FIA with an income rider offers 12 features that are listed at the beginning of the post, and, furthermore, is the only investment of which I’m aware that offers all 12 features. While it doesn’t have all of the bells and whistles of a FIA with an income rider, there’s another fixed income annuity option that includes a couple of retirement income planning benefits that aren’t found in FIAs with income riders. The strategy I have in mind is the deferred income annuity, or “DIA.”

Let’s begin our understanding of DIAs and comparison to FIA’s with income riders by listing the 12 features offered by FIAs with income riders. The features are color-coded as follows:

  • Green: Offered by DIAs
  • Red: Not Applicable to DIAs
  • Blue: Applicable to DIAs on a Limited Basis

Here are the 12 features offered by FIAs with an income rider, color-coded to indicate their applicability to DIAs:

  1. Guaranteed income*
  2. Lifetime income
  3. Tax-deferred income
  4. Known future income amount at time of initial and ongoing investments
  5. Flexible income start date
  6. Greater income amount the longer you defer your income start date
  7. Potential doubling of income amount to cover nursing home expense
  8. Investment value in addition to future income stream
  9. Protection from loss of principal
  10. Potential for increase in investment value
  11. Potential matching of percentage of investment amounts by financial institution
  12. Death benefit

*Guaranteed income refers to income for which an insurance carrier is contractually bound to pay to an annuitant(s) and/or an annuitant’s beneficiaries that is subject to the claims paying ability of each individual insurance carrier.

The first three features, i.e., guaranteed income, lifetime income, and tax-deferred income, are shared by all fixed income annuities. They’re the reason that fixed income annuities are a solid retirement income planning solution that let their owners sleep better at night.

Part 2 of this post will discuss the features that are offered by FIAs with income riders that aren’t included with DIAs. Part 3 will address the features that are applicable on a limited basis. Retirement income planning benefits that are unique to DIAs will be the subject of Part 4. Finally, Part 5 will answer the question, FIAs with income riders vs. DIAs: Which is right for you?

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