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Old 10-04-2012, 08:13 PM   #21
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TIAA-Traditional is interesting in that you contribute to it over a number of years and get a minimum of 3% return, this year's return is 4.2%, previous years have been as high as 7% on some of the contributions. At retirement you have a number of options that include a SPIA, lump sums, regular fixed sums, or you can just let it keep accumulating. If you did the last it could act as longevity insurance.
I don't see how that is longevity insurance. It's simply your own money sitting there, just like anything else in your portfolio with which you could then buy a SPIA.
Bruce
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Old 10-04-2012, 09:30 PM   #22
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I don't see how that is longevity insurance. It's simply your own money sitting there, just like anything else in your portfolio with which you could then buy a SPIA.
Bruce
The TIAA-Traditional is not very liquid and gets a guaranteed min of 3%, so it is quite different from the rest of my portfolio. It would be interesting to compare the benefit you get using a specific amount to buying longevity insurance vs the same amount left to compound in TIAA-Traditional until 85 and then taking the single life annuity.

I just did some googling and found that for a 65 year old man a $100k SPIA will pay out $6.95k a year, and that buying longevity insurance with the $100k would give an annual pay out at 85 of $63k. If you have the $100k in TIAA-Traditional and it compounds from 65 to 85 at 4.2%. You'd end up with $218k and that would get you an SPIA at today's rates that would pay $32k a year. So you get half the pay out, but have more flexibility and I interest rates might be higher in the next 20 years giving you more principal and a bigger SPIA payout.......Of course with $218k at 85 it would be a good bet that you could just spend $63k a year and not run out of money before you die.
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Old 10-04-2012, 11:07 PM   #23
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Being pensionless, I'm very interested in longevity insurance.

FYI, here is MetLife's brochure on its longevity-insurance products.
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Old 10-05-2012, 09:00 AM   #24
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I don't see how that is longevity insurance. It's simply your own money sitting there, just like anything else in your portfolio with which you could then buy a SPIA.
Bruce
The TIAA-Traditional is like the flexible longevity insurance that you can start taking before 85. It will give a similar benefit. True longevity insurance that only pays anything if you get to 85 will pay about twice the benefit, but obviously isn't as flexible. As ever there are lots of things to consider in buying these products.
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Old 10-05-2012, 09:15 AM   #25
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I guess there are a lot of teachers in this forum? Isn't that how you get access to TIAA funds? So for those who don't have that access, like me, I think the difference between just putting the money aside yourself or buying this longevity insurance might just revolve around the Treasury dept. ruling that I discussed in a previous post.

The ability to buy this product with 401K/IRA assets and then have it reduce your IRA balance when calculating minimum distributions is a BIG deal for some of us...depends on how much you have in your IRA of course.

Anyway, that was the question I was trying to pose when I posted in this discussion but I can understand if it isn't pertinent to most participants.

For me, I'd love to have TIAA but I don't and can't.
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Old 10-05-2012, 09:54 AM   #26
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I guess there are a lot of teachers in this forum? Isn't that how you get access to TIAA funds? So for those who don't have that access, like me, I think the difference between just putting the money aside yourself or buying this longevity insurance might just revolve around the Treasury dept. ruling that I discussed in a previous post.
Many public employees, university workers and researchers have access to TIAA retirement products.

TIAA traditional is just a guaranteed income product. Because of TIAA's insurance background and very conservative approach to investing it's always been one of the core investments - it's now supplemented with the usual range of mutual funds and target date funds. I've put money into it over 25 years and it's about 10% of my portfolio. You can buy similar things from lots of insurance companies. IMHO the growing popularity of longevity insurance highlights the errors in conventional AA advice over recent decades. If income products had been part of people's AA right from the start they wouldn't be worried about running out of money in retirement. If you have SS and some guaranteed supplement like an annuity you don't have to worry about running out of money. The problem I have with true longevity insurance is you don't get any income until the start date of the contract. Say that's 85, what happens if you run out of money at 80?
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Old 10-05-2012, 01:07 PM   #27
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Naturally because of the long deferral, the payments are quite large in relation to the premium paid. I find them very attractive and a good hedge against inflation.
Bruce
If this is a hedge against inflation, which using a normal definition of hedge it cannot be, might not a US treasury zero coupon bond to mature on the same date that your pyments would begin be as good or better?

Ha
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Old 10-05-2012, 01:43 PM   #28
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IThe ability to buy this product with 401K/IRA assets and then have it reduce your IRA balance when calculating minimum distributions is a BIG deal for some of us...depends on how much you have in your IRA of course.
True. While removal of a "slice" of money from our IRA's which is no longer subject to investment risk, we also looked at factors such as you noted, as related to future "excess RMD's" - that is withdrawls required by law, not necessarily to meet current income needs.

If one was to consider a longevity product, they also need to consider the non-direct financial considerations in their decision.
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Old 10-05-2012, 07:55 PM   #29
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If this is a hedge against inflation, which using a normal definition of hedge it cannot be, might not a US treasury zero coupon bond to mature on the same date that your pyments would begin be as good or better?

Ha
As I see it, if I'm 70 today and, because of the longevity insurance, my income will jump to $135,000 at age 85, that is certainly some protection in the erosion of spending power of my current income. A zero coupon bond purchased today would do nothing but guarantee a lousy return on those funds for the next 15 years.
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Old 10-05-2012, 09:13 PM   #30
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Rescueme, Thanks so much for addressing my point.

Now I'm wondering if you've written something on this subject.

You said "we also looked at factors such as you noted, as related to future "excess RMD's".

So who is WE? and is there some study I could read? or is this the imperial WE? I'd love to find more on this subject as the insurance agents aren't going to be as knowledgeable I imagine.
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Old 10-05-2012, 09:35 PM   #31
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Hi,
I'm new to this forum but I am 65 and seriously considering buying a longevity insurance annuity as my family has the annoying habit of long life
I skimmed what you had in this thread and I don't see any mention of what I consider a HUGE change that affects this decision. Seems the treasury dept. is either already or in process of changing rules so we can buy the deferred annuity out of our 401K plans and thus drop the 401K balance.
Here's a link to the recent Bogleheads discussion on this rule change.

Thanks for posting about this, I hadn't heard about it. That could reduce the cost of these products (by reducing the account balances used to calculate the RMDs, thereby reducing the RMD and the potential bump into a higher bracket.) I'd need to know if any solid companies are offering inflation-linked longevity insurance before I'd buy a policy.
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Old 10-05-2012, 09:45 PM   #32
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If this is a hedge against inflation, which using a normal definition of hedge it cannot be, might not a US treasury zero coupon bond to mature on the same date that your pyments would begin be as good or better?
But buying the insurance should be less expensive than buying the bond, due to the mortality issue. In the case of the insurance, the survivors get to split up the contributions and growth of those who didn't live long enough to collect. In addition, with the bond ladder idea you still have to guess how long you'll live when you set things up. With the longevity insurance (or deferred annuity) the checks keep coming as long as you are alive.
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Old 10-05-2012, 09:49 PM   #33
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Here's a link to the recent Bogleheads discussion on this rule change.

Thanks for posting about this, I hadn't heard about it. That could reduce the cost of these products (by reducing the account balances used to calculate the RMDs, thereby reducing the RMD and the potential bump into a higher bracket.) I'd need to know if any solid companies are offering inflation-linked longevity insurance before I'd buy a policy.
I checked the Bogleheads link and unfortunately it points to the same NY Times article where I got my info...circular. I'd love to find something more definitive from Treasury if anyone knows that reference. The article is vague about when it goes into effect. And I'm trying to find solid insurance companies now who offer it. MetLife is about I've come up with so far.
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Old 10-06-2012, 07:50 AM   #34
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Now I'm wondering if you've written something on this subject.
I've written much on the subject of SPIA's for more than a few years, since DW/I (the "we") have had one since mid-2007. You can do a search on the subject (or my user name) to scan several years of discussion.

I retired in early 2007, but we had been investigating the "product" for about two years before my actual retirement.

Since I'll only speak of a product that I/we actually have (rather than just give my opinion), I'll just add that an SPIA (and only an SPIA) does not have a "salesman". Yes, you do have a licensed agent that handles the paperwork (in our case, through Fidelity), but the costs are re-captured by the insurance company based upon the spread of what they can make by investing your premium, minus what they pay you every year.
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Old 10-06-2012, 09:01 AM   #35
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I checked the Bogleheads link and unfortunately it points to the same NY Times article where I got my info...circular. I'd love to find something more definitive from Treasury if anyone knows that reference. The article is vague about when it goes into effect. And I'm trying to find solid insurance companies now who offer it. MetLife is about I've come up with so far.
Is this better?
http://www.iriconferences.org/wp-con...y-00174334.pdf
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Old 10-06-2012, 12:09 PM   #36
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But buying the insurance should be less expensive than buying the bond, due to the mortality issue.
Good point, I was ignoring motatlity effects, which is likely a big part of the payoff here.
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In addition, with the bond ladder idea you still have to guess how long you'll live when you set things up. With the longevity insurance (or deferred annuity) the checks keep coming as long as you are alive.
Well, perhaps, but you could pick zeros to mature every 6 months until an advanced age, if you do this when you are already getting up there. My main comment was that this may or may not be a good investment, but it is not an inflation hedge, as it it not linked to inflation. In fact, a big inflation wipes it out. whether you use zeros or this product. An inflation linked one might be excellent, however.

Ha
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Old 10-06-2012, 12:43 PM   #37
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An inflation linked one [longevity policy] might be excellent, however.
I think so, too. The articles about these products ("deferred income annuities") indicate that companies offer these, but I haven't found one yet.

What I'd be interested in: A pooled fund through an insurance company available for purchase by folks who are presently my age. Invested in (and secured directly by) stripped TIPS that mature in the year I turn 85. In that year the insurance company cashes in the stripped TIPS and distributes the proceeds to all surviving members of the pool. They can use the funds to buy an immediate annuity that will provide income for the rest of their lives. I'm 51 now, so approx 1/2 of the "class" will be dead by age 85. If I put $50K into this and it only barely keeps pace with inflation (the insurance company keeps any real growth as their piece of the pie), I can expect to get $100K (because only half us are alive to get a payout) in 2012 buying power when I'm 85.
That will provide approx $1200 per month (2012 dollars) through an immediate annuity for as long as I live. Not a king's ransom, but enough (together with SS and a paid-off house) to keep the groceries coming in. The knowledge that it was in the offing (guaranteed by USG bonds, not a private insurance company) would permit more aggressive spend-down of the rest of the portfolio while I'm young enough to enjoy it.
Also attractive: I don't have to buy the annuity today (with interest rates at record lows). Also a bonus if I can use $50K from my 401K to buy the initial contract--pre-tax money and I don't really care if the later monthly checks are taxable as I'll probably be at zero effective tax rate if these checks are what's keeping me afloat.
Anyway, I'm sure if this could be profitably sold that some companies would already be doing it.
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Old 10-06-2012, 01:23 PM   #38
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...An inflation linked one might be excellent, however...
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I think so, too. The articles about these products ("deferred income annuities") indicate that companies offer these, but I haven't found one yet....
I also think an inflation linked payout would be a great product but have not looked for one yet. Please share if you find such a product from a strong company and/or structured in such a way that the product could not be wiped out by bankruptcy or other shenanigans.

My thoughts are that such a product should be even more reasonably priced if purchased fairly early (say 30's or 40's) and provide more options for intervening retirement planning similar to pensions and SS.
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Longevity
Old 10-06-2012, 08:09 PM   #39
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Longevity

I think I read a smart quote somewhere: "Longevity Insurance solves one of the hardest problems in retirement planning: when are we going do die"

I love the idea too. Espc if I can get it with a 401K. This way I always know that my money has to last me to 85.. not 95 or even 105 if technology comes along and makes us all live much longer.

Also to the person that asked about what does an insurance co do if technology make life spans much longer, I read somewhere that they just make more money on life insurance which should pay out less if that is the case.
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Old 10-06-2012, 08:12 PM   #40
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When i was looking into them I didnt see any inflation linked longevity annuities. I reckoned that I had to just had to estimate inflation at 3% (wag I know) and buy twice what I would need in todays dollars. Not great but not terrible.
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