What You Need to Know About Longevity Annuities

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There’s one question that no retirement planner can answer: how long exactly you need to plan your retirement for to live out the rest of your life comfortably. In addition to determining how much you should save, this how long unknown also impacts what you can afford to spend early on in retirement. 

The longevity insurance solution: If you do your pushups everyday (or even if you don’t), you can choose to purchase an insurance product that will cover you financially if you do indeed live a very long life. Longevity insurance is akin to the opposite of life insurance, which covers your expenses should you die prematurely. A longevity annuity, or deferred income annuity, allows you to access a stream of income in your later years, when you turn 80 or older, for example. 

Considering longevity insurance as an option can change your retirement planning in a big way. Instead of having to stretch your retirement money until your dying day (literally), you can instead settle on a plan that takes you from 65 to 85, at which point you can rely on an income stream from longevity insurance. 

Retirement goals: Longevity insurance has the potential to help you to spend your retirement living more comfortably, and perhaps knocking off a few more bucket list items than you might otherwise. “For a typical retiree, allocating 10-15 percent of wealth to a longevity annuity creates spending benefits comparable to an allocation to an immediate annuity of 60 percent or more,” according to Jason Scott of Financial Engines in the Financial Analysts Journal

And, what’s a bucket list without your best friend? Longevity insurance offers joint-life annuity options to cover both you and your spouse from outliving your assets. 

How it works: The money that the insured(s) pays gets invested, compounding before you begin to receive payments. And of course, not everyone will collect the monthly payouts until they are 100 years old. Those who use the insurance for a shorter period of time subsidize those use it as an income stream for longer. In the case that you die before your payments exceed the original amount deposited, there are typically return of premium options, which can payout the annuity to a beneficiary of choosing. This option can increase your premium. 

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