Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Has anybody researched longevity annuities?
Old 10-31-2008, 07:47 AM   #1
Confused about dryer sheets
 
Join Date: Oct 2008
Posts: 9
Has anybody researched longevity annuities?

Some time ago, there was a thread here about longevity annuities -- annuities that only start to pay out if and when you reach an old age, such as 85.

Does anyone offer an inflation-adjusted longevity annuity?

I contacted MetLife to inquire about their longevity annuities, but I was not impressed. They gave me the following quote for my 61-year old mother:

Initial Purchase Payment: $30K
Commencement Date: 85 years old (24 years from now)
Income payment amount: $1571.04/month (non-inflation-adjusted)

I calculated the PV of this potential income stream using a 3% real interest rate (i.e., TIPS) as the discount rate and using the mortality statistics in the 2004 Period Life Table on the ssa.gov website.

The only way it would make sense is if there was no inflation.
With no inflation, the PV = $28,500
But with 3% inflation, the PV = $12,500
And with 4% inflation, the PV = $9,600

A horrible deal, IMO. (The PV calculations take into account the likelihood of one dying and getting nothing or little).

Has anyone else looked into longevity annuities and tried to estimate their value?
__________________

__________________
tipster is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-31-2008, 08:29 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by tipster View Post
Some time ago, there was a thread here about longevity annuities -- annuities that only start to pay out if and when you reach an old age, such as 85.

Does anyone offer an inflation-adjusted longevity annuity?

I contacted MetLife to inquire about their longevity annuities, but I was not impressed. They gave me the following quote for my 61-year old mother:

Initial Purchase Payment: $30K
Commencement Date: 85 years old (24 years from now)
Income payment amount: $1571.04/month (non-inflation-adjusted)

I calculated the PV of this potential income stream using a 3% real interest rate (i.e., TIPS) as the discount rate and using the mortality statistics in the 2004 Period Life Table on the ssa.gov website.

The only way it would make sense is if there was no inflation.
With no inflation, the PV = $28,500
But with 3% inflation, the PV = $12,500
And with 4% inflation, the PV = $9,600

A horrible deal, IMO. (The PV calculations take into account the likelihood of one dying and getting nothing or little).

Has anyone else looked into longevity annuities and tried to estimate their value?
MetLife is not stupid. They know the mortality rates at age 85 are quite high, even for women. However, based on the promise of having to deliver income for lifw in case she makes it, they suppress the IRR inside the contract so they are covered either way.

I would imagine they would have some sort of death benefit if she dies before she turns 85, otherwise this is the worst kind of deferred annuity on earth.........
__________________

__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 10-31-2008, 08:36 AM   #3
Confused about dryer sheets
 
Join Date: Oct 2008
Posts: 9
Quote:
Originally Posted by FinanceDude View Post
I would imagine they would have some sort of death benefit if she dies before she turns 85, otherwise this is the worst kind of deferred annuity on earth.........
Yes, you're right. It does include a death benefit = total purchase payments compounded at 3% annually. I didn't include the PV of the death benefit in the calculations above.

So here's the PV (again using 3% real as the discount rate) of the death benefit, by my calculations:
If inflation = 0%, PV of death benefit = $15,300
If inflation = 3%, PV of death benefit = $9,800
If inflation = 4%, PV of death benefit = $8,500.

So total PV of LIG with death benefit:
If inflation = 0%, Total PV = $43,800
If inflation = 3%, Total PV = $21,300
If inflation = 4%, Total PV = $18,100

Still a bad deal, IMO.

Also, the way I see it, there isn't any point to paying an insurance company for a "death benefit." May as well just invest it yourself (e.g., in TIPS), and when you die, it goes to your heirs.

I would guess that the longevity annuities out there are all encrusted with useless features like the death benefit.
__________________
tipster is offline   Reply With Quote
Old 10-31-2008, 09:12 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by tipster View Post
Yes, you're right. It does include a death benefit = total purchase payments compounded at 3% annually. I didn't include the PV of the death benefit in the calculations above.

So here's the PV (again using 3% real as the discount rate) of the death benefit, by my calculations:
If inflation = 0%, PV of death benefit = $15,300
If inflation = 3%, PV of death benefit = $9,800
If inflation = 4%, PV of death benefit = $8,500.

So total PV of LIG with death benefit:
If inflation = 0%, Total PV = $43,800
If inflation = 3%, Total PV = $21,300
If inflation = 4%, Total PV = $18,100

Still a bad deal, IMO.

Also, the way I see it, there isn't any point to paying an insurance company for a "death benefit." May as well just invest it yourself (e.g., in TIPS), and when you die, it goes to your heirs.

I would guess that the longevity annuities out there are all encrusted with useless features like the death benefit.
You are forgetting the tax deferral in your caluclations. What bracket is your mom in? It won't change the decision that much but it is a factor. Bottom line, I don't like them, whether they're sponsored by MetLife, AARP,or Consumer Reports.........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 10-31-2008, 09:16 AM   #5
Confused about dryer sheets
 
Join Date: Oct 2008
Posts: 9
Quote:
Originally Posted by FinanceDude View Post
You are forgetting the tax deferral in your caluclations. What bracket is your mom in? It won't change the decision that much but it is a factor. Bottom line, I don't like them, whether they're sponsored by MetLife, AARP,or Consumer Reports.........
Good point. Thanks. I'm also not factoring in the surrender value, if, for example, you found out you had a terminal condition and you wanted to cash out. It has a value, but I frankly have no idea how to put a PV number on that.

BTW, Mom's in the 15% bracket. I think ~5% state income taxes too.
__________________
tipster is offline   Reply With Quote
Old 10-31-2008, 09:19 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Wait until she retires. If she or you are worried, you can always find a good SPIA to cover her necessary expenses until she takes SS. In a year, she can take SS at age 62, so go to ssa.gov and do the PV calculation on her taking it at 62 verus 65 or 67.
__________________

__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Longevity Annuity FIRE'd@51 FIRE and Money 14 08-15-2007 06:07 PM
Longevity discussion Spanky Health and Early Retirement 26 05-21-2007 03:50 PM
longevity: influence the outcome perinova Health and Early Retirement 3 12-06-2006 10:13 PM
Longevity of a cedar fence mickeyd Other topics 8 08-03-2006 02:10 PM
longevity insurance ats5g FIRE and Money 17 02-06-2004 08:28 AM

 

 
All times are GMT -6. The time now is 12:53 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.