Deferred income annuities (DIA) are a rising star among retirement offerings. DIA sales have increased in five consecutive quarters and experienced a year-over-year jump of 150 percent in the first quarter of 2013. Companies offering DIAs, or those who have filed to offer, have doubled to more than a dozen since 2012. And 70 percent of annuity owners are confident they will have enough money to pay for long-term care expenses, compared with 54 percent of those who do not own an annuity.
DIAs are expected to continue to grow faster that any other retirement product through 2014, according to “Deferred Income Annuities: Insuring Against Longevity Risk,” a new report from the Insured Retirement Institute.
“DIAs achieved their first year of significant sales, about $1 billion, in 2012, and sales have continued to grow in 2013,” said Cathy Weatherford, IRI president and CEO. “While this is only a small percentage of overall industry-wide annuity sales, we expect this growth to continue into 2014. As more companies begin to offer DIA products and as they expand into new distribution channels, DIAs are becoming a viable option for consumers and financial advisors looking for guaranteed retirement income to insure against longevity risk.”
Increasing life expectancies and a preference for guaranteed income products among baby boomers requires insurers to adjust their retirement offerings accordingly. Similar to advanced life deferred annuities (ALDAs), DIAs are designed to provide income later in life to protect against the risk of outliving assets.
The report cites a 2013 survey where 49 percent of retirees stated they retired before age 65. This means most Americans may be spending 20-plus years in retirement, IRI says. Perhaps this is why, according to IRI’s research, one-fifth of baby boomers stated guaranteed income each month is the single most importance trait in a retirement investment product.
While ALDAs, considered a precursor to DIAs, never experienced significant interest, insurers have revisited the concept by shortening the deferral period. DIAs also offer more flexibility through, among other features, optional death benefits and liquidity options.
Also, IRI’s research also indicates that the average DIA buyer profile resembles that of buyers of variable annuities and fixed-indexed annuities with living benefits—the average DIA buyer is in their late 50s. The average income deferral period for DIA products is eight years.
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