
Longevity
The 5 Things to Add to Your Longevity Action Plan
Retirement is a time for you to live life to the fullest. We created a quick checklist of what you can do to stay ahead of your health and saving to-dos.
Like many insurance or financial products, a longevity annuity allows you to customize and add features to meet your needs. The base product will provide the most income based on the premium you pay, your age and your gender. But extra features (sometimes called riders) can create better guarantees and be inclusive of your family dynamics.
While not every insurer will offer every option, here is an overview of what features you may encounter!
You can have a longevity annuity just for yourself, or add your spouse to it.
You can choose a further guarantee for the payments you want to receive:
You can choose to receive income payments on a monthly, quarterly, semi-annual or annual schedule. Most choose monthly.
You can choose to have your income adjusted for inflation each year. It can be inflated between 1 – 5% or based on the Consumer Price Index. However, this will cause your income start point to be lower.
This feature is important because retirement can be long, and your income might lose purchasing power over time. While we’re currently experiencing a period of low inflation, it’s averaged 3.2% over the past century, meaning that prices have almost doubled every 20 years. However, it’s not the most efficient way to hedge against inflation, as the extra protection will come at a cost. Consider instead more direct ways to earn inflation-adjusted dollars. Your Social Security benefit, for one, will be indexed for inflation through a Cost of Living Adjustment. And, for the rest of your assets, maintaining exposure to equity markets and investing in inflation-linked bonds, such as TIPS or I-Bonds, can provide an effective hedge.
To illustrate, let’s use Alan, a 50-year-old who wants to purchase a $100,000 longevity annuity with income starting at age 85. His initial quote excluded inflation protection and got him $5,910 per month ($70,900 per year). If he’d like his income payments to keep pace with inflation, estimating it to be 1% per year, he’ll have to accept a lower initial income of $5,620 per month ($67,500 per year) which will increase over time.
Also known as principal protection, the cash refund option mentioned above guarantees that any principal not yet paid back in the form of income payments will be returned to your beneficiary upon your passing.
For example, if our 50-year-old pre-retiree Alan is worried about losing money in the event of prematurely passing away, he can add the return of premium and death benefit riders to his longevity annuity. His $100,000 longevity annuity policy will offer a lower monthly income to cover the cost of the richer guarantee, but any unrecognized value in the contract will be passed onto his heirs. Should Alan pass away before income payments begin, his $100,000 premium will be returned to his beneficiaries. If he passes away after income payments have begun but before those payments are cumulatively $100,000, his beneficiaries will receive $100,000 less the total income payments made.
Longevity annuities are like paychecks rather than savings accounts, so the money you receive each month isn’t usually flexible. However, most insurance companies offer the option to receive the next few months of payments in advance, which can be useful in emergency situations. This benefit goes by many names: commutations, withdrawal benefits, or payment acceleration. Each insurance company has different rules as to how many months of payments you can receive at once, and how many times you can utilize the benefit.
While each insurance company may have some different versions, this is a fairly comprehensive overview of the features.
If you are ready to get your own longevity annuity quote, visit our annuity calculator page to get your quote. If you need any help or have questions on how to customize your longevity annuity quote, email us at [email protected].
Retirement is a time for you to live life to the fullest. We created a quick checklist of what you can do to stay ahead of your health and saving to-dos.
You can retire easy and secure with a private pension (Personal Pension) because our Personal Pension is backed by a highly-rated insurance company that guarantees for every dollar you contribute, you will receive a certain amount of income every month starting when you retire.
Longevity annuities have several financial benefits to help make retirement planning simpler, but also have some drawbacks. Find out what a longevity annuity has to offer before you purchase.