Episode #77: Comparing Income Annuities: Deferred vs Indexed With a Rider

I recently worked with a couple who needed a strategy for safe income in retirement. I recommended a fixed indexed annuity (FIA) with an income rider, but they came back with a common question:

“Why should we use something with a fee when we could use a deferred income annuity (DIA) that doesn’t cost anything?”

That’s a fair question. So let’s break these two options down and compare what you get—and what you give up—with each one.

What Is a Deferred Income Annuity (DIA)?

A Deferred Income Annuity (DIA) is basically an immediate annuity with income that starts later.

You give a lump sum to the insurance company now. Then, starting on a date you choose, you receive guaranteed monthly income for the rest of your life.

Pros of a DIA:

• • Simple structure: You choose a start date, then income begins.

• • Return of premium option: If you pass away early, your beneficiaries can get the unused portion back.

• • No ongoing fees
    

Cons of a DIA:

• • You must lock in your income start date up front
    
    • • Most companies only let you change it once.

• • No liquidity
    
    • • Once you hand over the money, you can’t access it for emergencies.

• • No indexing
    
    • • The value doesn’t grow over time—just sits until income begins.

There’s nothing wrong with a DIA, but you give up flexibility in exchange for simplicity.

How a Fixed Indexed Annuity with an Income Rider Works

A Fixed Indexed Annuity (FIA) with an income rider works differently. You’re still buying an annuity, but this one has more moving parts—and more options.

You get:

• • Access to market-based growth through an index (like the S&P 500)

• • A guaranteed income rider that grows every year you wait

• • Flexibility to choose your income start date later—not at the time of application

You’re paying for the added features, like upgrading your car’s engine or adding a backup camera. The index growth adds potential for more death benefit later, and the rider gives you guaranteed income regardless of the market.

Not sure what caps, participation rates, or spreads mean? I explain all of that in Episode 3.

The rider ensures that your income base increases every year you defer. So even if the index performs poorly, your guaranteed income is still going up.

Death Benefit Options Compared

Many people worry that if they pass away early, their money will be gone. That’s a valid concern.

With a DIA, the return of premium rider ensures that if you pass away before receiving all your income, your heirs get the remaining amount back.

Some FIAs with income riders offer a similar guarantee. But many go further:

• • The death benefit is guaranteed until every dollar is paid back.

• • In some cases, the index growth extends the death benefit beyond the guarantee period.

Feature	DIA	FIA w/ Income Rider
Return of Premium Available	Yes	Yes (on select products)
Guaranteed Until Paid Back	Yes	Yes (depends on product)
Death Benefit Can Grow Over Time	No	Yes (via index performance)

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Extra Features: Long-Term Care Doublers and Liquidity

Most FIAs with income riders come with built-in benefits you won’t find in a DIA.

One key feature is the income doubler for long-term care. If you need skilled care and still have value left in the contract, your income may double to help cover the cost.

The other major advantage is liquidity:

• • Starting in year 2, you can typically withdraw up to 10% per year penalty-free.

• • After the surrender period (usually 7–10 years), you can walk away with your remaining account value if you decide not to use the income.

Feature	DIA	FIA w/ Income Rider
Income Doubler for LTC	No	Often included
Liquidity (10% withdrawals)	No	Yes (after year 2)
Cancel and Get Account Value	No	Yes (after contract term)

These differences matter, especially if you value flexibility.

For a full explanation of long-term care features, check out Episode 38.

Yes, There’s a Fee—But What Do You Get?

Yes, the income rider in an FIA typically comes with a fee, around 0.9% to 1.3% annually.

But what do you get for that expense?

• • Higher guaranteed income
    

• • Death benefit options
    

• • Long-term care support
    

• • Liquidity access
    

Let’s look at some numbers based on quotes available in June 2025 for a 60-year-old couple starting income in the future.

Income After 5 Years (per $100,000 premium)

Annuity Type	Annual Income	Difference
DIA	$8,900	–
FIA w/ Income Rider	$10,500	+17%

Income After 10 Years

Annuity Type	Annual Income	Difference
DIA	$13,308	–
FIA w/ Income Rider	$16,000	+20%

You’re not just paying a fee—you’re buying more income. And that income continues for life, with any unused value passed on as a death benefit.

Final Thoughts: What’s the Real Goal of This Money?

When choosing between these two options, the question isn’t just “Is there a fee?”

The better question is:

“What am I getting in return for this fee?”

And maybe more importantly:

“What’s the real purpose of this money?”

If your goal is to generate the most guaranteed income possible for every dollar invested, an FIA with an income rider will often come out ahead, even after fees.

When the income is higher, the death benefit is still available, and the flexibility is greater… is the fee really a problem? Or is it just a mental hurdle?

Want to Learn More or See If It Fits You?

If you’re new to annuities and want to understand how they work, start with my free video series:
20% More Spendable Income in Retirement

It’s a great introduction to building a retirement income plan that puts your needs first.

Already comparing annuities or wondering about one you’ve been pitched?
Book a short Zoom call here. I’ll walk you through the numbers and help you decide what’s right for your situation, without pressure.

All the best,

Marty Becker

Podcast Episode #77: Comparing Income Annuities: Deferred vs Indexed With a Rider

Download Episode #77: Comparing Income Annuities: Deferred vs Indexed With a Rider on Apple Podcast