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Old 04-06-2009, 09:11 PM   #21
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Originally Posted by FUEGO View Post
I was referring to a regular annuity that could be annuitized in the future at a given age (say, 80) that would pay equal payments or inflation adjusted payments from the age of annuitization until death. Definitely not a variable annuity.

My point is that annuitizing at age 65 doesn't give you a much higher cash flow due to mortality of others' in the insurance pool dying. Whereas, by age 80, the mortality rate of individuals in the risk pool is sufficiently large that you add a few percentage points (or 10% or more depending on age) to the return you get from an annuity.

What are the specific features of the "longevity insurance" you are describing? I'm quite the opposite of an expert on this, so I may be confusing things (but I'm interested in learning more about the mechanics of these products).
To me, the key difference between a "regular SPDA" and these newer products is surrender values before the monthly income begins.

If you buy at 65 intending to take a monthly income at 85, but have the right to surrender for most of your premium before then, you have a regular SPDA. If you can't get any money out without living to 85, and then the only payout is a monthly income, that's an unusual product that some people call "longevity insurance".

There are features that can blur the difference. It sounds like Kronk's could be purchased with a death benefit if you die before the monthly income begins, but no payout for a voluntary surrender.

I agree with the article that the logical use of the no-surrender-value version is to use a small percent of your assets to guarantee a monthly income if you happen to live a long time, but then maintain control over the bulk of your assets, knowing that you can spend principal from them because you've got the back end covered. If I were buying something like this, I wouldn't want the death benefit rider.
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Old 04-07-2009, 08:26 AM   #22
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If anyone is interested, mom has decided to take a pass on this at this time. She doesn't have a good feel for her monthly expenses, since she doesn't currently own a house and has some of her housing expenses paid for her (she currently lives in a parsonage). She's planning on paying cash for a house within the next three years, and her portfolio is fine even with that chunk put into a house.

Anyhow, her life goals are to do more travelling (Alaskan cruise, Volga cruise, Israel, Scotland). She's very frugal from many years of practice, and I don't think she'll have trouble meeting expenses. Tying up current money for a future income stream doesn't seem to fit her goals.

That said, we'll keep the option open for taking SS at 70 instead of 68 (or taking it at 68 and paying it back if desired). We'll also keep the longevity insurance under consideration. The more I think about it, the more the death benefit really does nerf the whole concept. If she were going to do it, I'm now thinking that the age 85 option with no death benefit might be the best option. But maybe by hedging the bet and only dropping 15k into it for $550/mo at age 85.

Thanks for the comments.
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Old 04-07-2009, 02:18 PM   #23
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Originally Posted by Independent View Post
I agree with the article that the logical use of the no-surrender-value version is to use a small percent of your assets to guarantee a monthly income if you happen to live a long time, but then maintain control over the bulk of your assets, knowing that you can spend principal from them because you've got the back end covered. If I were buying something like this, I wouldn't want the death benefit rider.
This is basically what I'm talking about making sense for many people (one of the few annuity type investments that may actually make sense in fact).

It allows one to maximize lifetime spending. Here's an idea of the way it would work: Take a few percent of your portfolio (or even 5-10 percent), buy a single premium deferred annuity at age 55 that starts paying at age 85 in an amount sufficient to cover most of your expenses after SS payments. Then ER at 55, and spend essentially your whole remaining portfolio in the next 30 years. At age 85, if you make it that long, the SPDA kicks in and that plus your SS would be sufficient to live on (theoretically speaking).

Nice little plan, and it might allow you to take 3.6% SWR (ie 4% of 90% of your portfolio after you buy the SPDA) versus closer to 3% if you ER at 55 and plan on a 40-50 year retirement period.
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