Longevity insurance is a relatively new form of annuity. By carving out the single most compelling and important feature of lifetime income – the longevity guarantee- insurers now offer retirement investors the choicest of cuts, without any of the gristle.
Want to create your own private pension? Let me explain-
Immediate annuities and Hybrid Annuities are compelling because they offer lifetime guaranteed income. The longer you live, the better rate of return on investment you have. Insurers can make this bet because actuarially and statistically, they know when people are likely to die, and they can accept premiums to pay benefits around this knowledge. They do it all the time with life insurance.
What makes lifetime income work is the “Mortality Credit’ this is the extra return on investment you earn because others in your risk pool and age group do not live long enough to enjoy the benefits.
The problem is, if you buy a lifetime guarantee product early in your retirement- prior to age 70 or so- chances are good your income payout rate will be pretty low. Payouts for immediate annuities and income riders all vary, but rately exceed about 6% of your invested principal.
If you wait to buy the lifetime income till you are 75 or even 80 yrs old, however, the payout rate is much higher. there are just a lot of risks in losing your principal between the start of retirement and the annuitization purchase time.
Longevity Risk is the biggest threat to retirement- the risk of outliving your money. But with a longevity guarantee annuity, you can buy the mortality credits and have them start on a definite future date, and manage the remainder of your portfolio with a lot more accuracy and certainty.
By knowing when you can reach $0, you can invest accordingly and live life without fear of running out of money. Contracts vary, but typically we work with investors in their early 60’s, and they invest enough to guarantee lifetime income starting at age 85. That gives investors a definite period of 20 to 25 years to manage their portfolio, or buy other fixed term annuities like Secondary Market Annuities, with the longevity risk transferred to the carrier.
Lifetime Income Guarantee longevity insurance is the perfect backstop also to a portfolio made of up fixed term Secondary Market Annuities.
Take a moment to call us to discover how lifetime annuity products might work for you
You can also explore this recent Wall Street Journal article here. Here are some excerpts:
How to Create a Pension (With a Few Catches)
Americans with pension envy increasingly are turning to a relatively new breed of annuity, known as “longevity” insurance, to restore some financial security to what are supposed to be their golden years.
With such an annuity, would-be retirees can use a small piece of their portfolio to purchase a relatively large income. In return, investors must be willing to defer that income—typically, for several years—and give up access to at least some of their money. What’s more, as with many fixed annuities, holders could end up sacrificing higher returns that might be available from the stock market.
In recent months, the concept has started to catch on, particularly with baby boomers seeking to boost retirement income in an era of low interest rates.