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Spring 2022  Volume 15, Number 1        

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Never Outlive Your Savings with Longevity Annuities

The Centers for Disease Control and Prevention estimates that the average 65-year-old will live at least another 20 years, which is six years more than what life expectancy was in 1950. While this is great news, it does present a financial challenge — how to ensure that your retirement savings will last a lifetime.

Some seniors address the money issue by working past age 65 or delaying Social Security. Others are turning to longevity annuities.

A longevity annuity, also referred to as a deferred income annuity, is a contract between an individual and an annuity provider. The individual, upon payment of a lump sum, receives guaranteed monthly income for life. Payments usually start between ages 75 and 85.

Many retirement experts tout longevity annuities as one of the best financial deals for seniors who are worried about outliving their savings, but that doesn’t mean longevity annuities are popular. According to LIMRA, an insurance industry group, deferred income annuities accounted for only $1.7 billion of the $219 billion in total annuity sales in 0. In comparison, variable annuities accounted for almost $99 billion of sales last year.

An important hurdle is that many investors are reluctant to hand over a large sum of money that may not pay any benefits if the policy holder doesn’t live long enough. Many people prefer instead to retain control over their money by putting their money in other investments.

However, if an individual does live a long life, a longevity annuity can pay off handsomely.

How it Works

First, determine how much income you will get from Social Security or retirement accounts. Then look at your expenses and estimate how much more you think will need to live comfortably starting at, say, age 85. For instance, if you think you’ll need $50,000 a year and know you will get $30,000 a year from Social Security, you’ll need $20,000 a year from the annuity.

Of course, determining how you much will need to live on two decades from now is easier said than done.

If you decide a longevity annuity would make a good addition to your retirement planning, you will purchase it with a one-time lump-sum premium. The payouts usually are deferred as least two years after the annuity is purchased. The insurance company invests the initial investment money on your behalf, therefore the longer you delay your payouts, the greater the size of the payouts.

For example, a 65-year-old man may decide to buy an annuity for $100,000 in order to receive a $500 per month payment immediately. But if he waits 20 years, he will receive $2,800 a month.

If you don’t have enough savings, you can use up to $135,000 or 25 percent (whichever is less) of your retirement funds to buy a qualified longevity annuity contract (QLAC).

Besides a life only policy, where payments stop at death, you also can purchase a longevity annuity with refund options, which include:

  • Life with Refund at Death: Pays beneficiaries the difference between the initial premium investment and the sum of all payments already received upon your death.
  • Life with Period Certain: Upon your death, your beneficiaries receive the remaining payments if you pass away during a certain period (for example, during the third year of a 10-year certain annuity).

Be sure to look at the credit rating of the insurers you’re considering. The stronger an insurer’s financial rating, the greater the likelihood the company will stay in business long term and be able to make payments when you’re ready to start receiving them. It might even be worthwhile to get smaller payments from a higher-rated company.


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In this issue:

This Just In...

Never Outlive Your Savings with Longevity Annuities

Lose Weight to Save On Insurance

Not Getting Vaxxed? Here’s What to Do if You Lose Your Job

Options If You Don’t Have Dental Insurance


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