Wade Pfau, Ph.D., CFA, RICP®

Why Retirees Should Choose DIAs over SPIAs


My new column at Advisor Perspectives is called, “Why Retirees Should Choose DIAs over SPIAs.” In the past, I’ve written about the efficient frontier of retirement income, finding that retirees can best satisfy twin goals of preserving their lifestyle spending needs in bad luck cases and leaving the potential for upside as well through a combination of stocks and SPIAs.  In this new column, I address the issue of what happens if deferred immediate annuities (also sometimes called deferred income annuities or longevity insurance) are added to the universe of choices when calculating the efficient frontier.


DIAs are like single-premium immediate annuities (SPIAs) in the sense that a lump-sum payment is made now to the annuity provider in return for a guaranteed income stream for the remainder of one’s life. The difference is that with a DIA, that guaranteed income stream begins at some later date further off into the future, rather than within one year. This allows the DIA to provide longevity protection more cheaply.

In the column, I describe what happens when I add DIAs with different deferral dates into the mix of retiree choices. I find that DIAs with 10-20 deferral periods [i.e. a 65 year-old couple buys a DIA with income beginning sometime between age 75 and 85] result in more efficient outcomes (better downside protection with very little impact on upside potential) than SPIAs. As well, including SPIAs or DIAs result in noticeably better outcomes than leaving everything just in stocks or bonds. Please see the column for more details.

Retirement Researcher is a SEC registered investment adviser. The content of this publication reflects the views of Retirement Researcher (RR) and sources deemed by RR to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.

The information throughout this presentation, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission there of to the user. RR only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. It does not provide tax, legal, or accounting advice. The information contained in this presentation does not take into account your particular investment objectives, financial situation, or needs, and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions.