A funny thing happened on the way to the 21st Century.
A large potential client base doesn’t lose as much sleep wondering what will happen if they die too young. What keeps them up at night now is worry that they’ll live too long – and outlast their assets.
As average life spans get longer and pensions – not to mention Social Security retirement benefits – get less certain, fear of outliving a retirement nest egg hatches into more than a headache.
Interest Grows in Longevity Annuities
In large part, annuity contracts are designed to provide an income stream after retirement but a specialty product known as a longevity annuity, or deferred income annuity, is gaining popularity.
With a longevity annuity, the insurance carrier agrees to pay your client periodic income as long as he or she lives, and a common stipulation is such payments don’t start until age 75 or later. The idea is by that time, your client already has been receiving income from other retirement assets, whether IRAs, 401Ks, pensions and/or Social Security.
Deferring income by a decade or more means a higher monthly payment than under a similarly funded immediate annuity. Under one scenario from New York Life, for example, a $50,000 immediate fixed annuity bought at age 65 yields about $275 a month. The same amount invested at age 65 but with income deferred income until age 80, generates a monthly income of about $1,200.
Industry experts expect to see more interest in these products, and recent sales data supports their predictions. In 2014, investment in deferred income annuities grew 22 percent, a record, over 2013, according to LIMRA, an insurance and financial services research organization.
When is a Longevity Annuity Appropriate?
Like other annuity products, longevity annuities can be funded in a lump sum or with premium payments over several years. Options can include a death benefit with continued beneficiary payments or return of the remaining premium, though such choices reduce the size of payments to the insured.
People with health or family histories who expect to live for some time after they retire – or those who retire early and want to diversify their retirement portfolio – are good candidates for longevity annuities. Clients without traditional retirement investments already are not. Nor are those who need more income now.
A longevity annuity can be considered as part of a diversified retirement strategy. Once your client commits to it, that money cannot be shifted elsewhere.
But these deferred income annuities are something for many clients to consider, especially if they are in their 60s.
According to the Centers for Disease Control, average life expectancy in the U.S. is 78.8 years. More telling is data compiled by the Social Security Administration:
- A man reaching age 65 today can expect to live, on average, until age 84.3.
- A woman turning age 65 today can expect to live, on average, until age 86.6.
- About one out of every four 65-year-olds today will live past age 90.
Are your clients ready? Under the right circumstances, a longevity annuity may help those who live long also prosper.