Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Longevity Insurance???
Old 06-05-2012, 07:37 AM   #1
Dryer sheet wannabe
 
Join Date: Apr 2011
Posts: 13
Longevity Insurance???

As far as I can understand, it is a deferred annuity where you put a lump sum down in your fifities or sixties and begin to collect a pretty good payout at age 85 (if you live that long). Anyone have any experience with them? Opinions? It seems to be a good way to avoid running out of cash in your later years.
__________________

__________________
Dino1 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 06-05-2012, 09:29 AM   #2
Thinks s/he gets paid by the post
73ss454's Avatar
 
Join Date: Oct 2004
Location: LaLa Land
Posts: 4,378
I don't know anything about them and don't want to. If running out of money is your concern I'd just delay SS.
__________________

__________________
Work is something you do to get enough $ so you don't have to....Me.
73ss454 is offline   Reply With Quote
Old 06-05-2012, 09:39 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,816
IMO, it makes a lot of theoretical sense.
I could use a small portion of my total assets to provide protection against running out of money after age 85, while still controlling most of my money.
I don't need an insurance company to invest the money I'll spend in the next 20 years.

It's a tough sell because most people hate to give the ins company a big single premium knowing that they get nothing back if they die before age 85.

There's also the risk issue. I like to shift the high volatility tail risk to the ins company. But, the insurer is on the other side and can see the high volatility and hence will load the premium for the uncertainty.

Then there's the problem with income annuities in a low interest environment. If TIPS are yielding inflation + 0%, the quoted rates for an inflation protected (the only kind I'd want), zero cash value, deferred annuity won't be very attractive.

The only issuer I know of is MetLife (but I've never gone out and looked hard for one). If it's a shallow market, there may not be enough competition.

(And, yes, always look at SS first. With low interest rates, SS is very attractive against private insurers.)
__________________
Independent is offline   Reply With Quote
Old 06-05-2012, 10:26 AM   #4
Full time employment: Posting here.
EvrClrx311's Avatar
 
Join Date: Feb 2012
Posts: 524
A little off topic, but certainly relevant to this thread...

I wonder if there are any clauses in these contracts that protect against huge advancements in longevity through science/medicine. Some leading geneticists speculate that children born today may have the choice to live to 200 (or even 1000). We are finding that aging is a process in the body that can be slowed down (maybe stopped?)

Current lab studies on organisms that share 97% of our DNA have been given genetic treatments that have extended their lives by 400% normal. If the same engineering worked on humans they could live in a 30 year old body for 200 years... essentially slowing aging to a crawl. In some studies, aging has been seen to reverse.

Genetic Clues to extending longevity [NYTimes]

I wonder what would happen if a young individual bought this longevity insurance to kick in at age 100... and then went on to live to 150 or older?

The real question is... will the brain hold up if everything else does?
__________________
EvrClrx311 is offline   Reply With Quote
Old 06-05-2012, 01:22 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,816
I'm quite sure that standard SPIAs sold today are guaranteed contracts, no room for the ins company to back out if life spans extend unexpectedly.
But note that companies already price for some "expected" mortality reductions.

There was a time when SPIAs were "participating" with planned dividends. But I think you'd have trouble finding one today (maybe NW Mutual Life).

When I said that longevity annuities are more volatile than regular SPIAs, I was thinking about this risk, which is non-diversifiable within the annuity line.

So what happens to the company?
- The annuity lines are very small and the losses would probably be covered by other lines.
- The life insurance contracts become more profitable than expected, generating unexpected profits there.
- If the company fails, then we're over to What happens if lifetime annuity issuer goes bankrupt?
__________________
Independent is offline   Reply With Quote
Old 06-05-2012, 01:24 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,412
Quote:
Originally Posted by Independent View Post
I'm quite sure that standard SPIAs sold today are guaranteed contracts, no room for the ins company to back out if life spans extend unexpectedly.
But note that companies already price for some "expected" mortality reductions.

There was a time when SPIAs were "participating" with planned dividends. But I think you'd have trouble finding one today (maybe NW Mutual Life).

When I said that longevity annuities are more volatile than regular SPIAs, I was thinking about this risk, which is non-diversifiable within the annuity line.

So what happens to the company?
- The annuity lines are very small and the losses would probably be covered by other lines.
- The life insurance contracts become more profitable than expected, generating unexpected profits there.
- If the company fails, then we're over to What happens if lifetime annuity issuer goes bankrupt?
+1
__________________
pb4uski is online now   Reply With Quote
Old 06-05-2012, 04:18 PM   #7
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
I also find the concept intriguing.

It just may be that with such a product, the risk of outliving your money is greatly diminished. In that case, it just may be that you can spend down the remaining nest egg before the longevity insurance benefit kicks in. In that manner you just may have a larger spendable income over your lifespan than using traditional planning. With traditional planning you almost certainly will go out with a large unspent nest egg cause' you just don't know how long you are going to live.

- and lets face it, we are not all going to live to be 90 or 95. Yet with traditional planning we have to plan for such. That lowers what we can spend every year.

- This type product spreads the risk of living too long. And if the insurance company gets to keep the large premium we paid because we died earlier than a very long life - then so be it. At least it allows us to spend with (more) certainty and better utilize our remaining nestegg.
__________________
MasterBlaster is offline   Reply With Quote
Old 06-05-2012, 04:37 PM   #8
Recycles dryer sheets
 
Join Date: Jun 2010
Location: Southwest Florida
Posts: 326
I looked into these quite extensively a year or so ago and concluded the rates weren't competitive. Also, I concluded that I was past the age, at 73, where a purchase made sense. The big discount for an annuity beginning payment at age 85 is for someone around 60-65. I believe with MetLife the maximum deferral for a purchaser over 70 was to age 80 rather than age 85 for a younger person.

Not many companies are offering these and that may explain the high rates. I have purchased several SPIA's and have always elected the initial payment to start in one year, the maximum allowed, to gain to a limited extent some of the advantage of longevity insurance.
Bruce
__________________
Gill is online now   Reply With Quote
Old 06-05-2012, 05:01 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
I personally think these make more sense than a regular SPIA. Especially for those of us in our 50s. Rather than forking over a large chunk of our assets in return for a <4% (COLA) withdrawal you give up a much smaller chunk of money to protect against a real but relatively small risk of living to a very old age AND running out of your money.

If you retire at 55 and find that you are depleting your principal, you don't have to worry about stretching your money for who knows how long, cause you know at 85 you'll be getting more income.

Has anybody found a good source for online quotes for deferred annuities? The ones I have seen want to have an agent call you, no thanks.
__________________
clifp is offline   Reply With Quote
Old 06-05-2012, 05:42 PM   #10
Recycles dryer sheets
 
Join Date: Jun 2010
Location: Southwest Florida
Posts: 326
Quote:
Originally Posted by clifp View Post
Has anybody found a good source for online quotes for deferred annuities? The ones I have seen want to have an agent call you, no thanks.
No, there are no online quotes for these contracts. As I mentioned, I've researched these policies extensively and found it necessary to obtain my quotes through an agent with the understanding it was all by email.
Bruce
__________________
Gill is online now   Reply With Quote
Old 06-05-2012, 05:57 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Seems if you bought an SPIA at 85 (too old?) instead of a deferred annuity at 65 it would save any inflation trouble during the 20 years between. And you could invest in equities for those years instead of receiving bond-like rates. And if you turned out to pass before 85 you'd still have the premium amount in your portfolio, with interest. Of course the price would have risen at 85, so maybe you'd need most of the market gains for that.
__________________
Animorph is offline   Reply With Quote
Old 06-05-2012, 07:38 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by MBMiner View Post
No, there are no online quotes for these contracts. As I mentioned, I've researched these policies extensively and found it necessary to obtain my quotes through an agent with the understanding it was all by email.
Bruce

Thanks, how much percent difference did you see between companies? Did any of them offer a COLA annuity?
__________________
clifp is offline   Reply With Quote
Old 06-05-2012, 09:52 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,816
Quote:
Originally Posted by Animorph View Post
Seems if you bought an SPIA at 85 (too old?) instead of a deferred annuity at 65 it would save any inflation trouble during the 20 years between. And you could invest in equities for those years instead of receiving bond-like rates. And if you turned out to pass before 85 you'd still have the premium amount in your portfolio, with interest. Of course the price would have risen at 85, so maybe you'd need most of the market gains for that.
Let's say the chance of a 65 yo male dying by 85 is 60%. So if you take the wait-and-see approach, you've got a 60% chance of leaving your premium to your heirs instead of leaving it to the insurance company. That sounds pretty good.

OTOH, the insurance company can invest the premiums of 100 people for 20 years, then use those accumulated premiums to buy immediate annuities on only 40 people. That means each premium grows by a factor of 2.5 from mortality alone. My equity investment would have to beat bonds by 4.6% per year. Maybe it will, maybe it won't.

Of course, it's more complicated than that. There's the fact that ins company expenses are higher than mutual fund expenses. But, then there's the fact that new SPIAs on 85 year olds are more expensive than the same annuity benefit on the 40 survivors of the original 100.

As always, it's a trade off. The key factor is probably how comfortable I am self-insuring the longevity risk.
__________________
Independent is offline   Reply With Quote
Longevity insurance--latest news
Old 10-04-2012, 08:02 AM   #14
Dryer sheet wannabe
 
Join Date: Dec 2009
Posts: 16
Longevity insurance--latest news

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.

that's significant when you come to the minimum distribution phase.

Here's a couple of sentences about these changes from an article in NYtimes in Feb. 2012:
Treasury is also changing the way of calculating required minimum distributions — the amounts that people over 70 are required to withdraw from their 401(k) plans every year. The new method would exclude any money that went to an insurance company to buy longevity insurance or an annuity. Some of the rules take effect immediately; other changes are in the public comment period.


Do any of you think that this changes the equation when deciding whether to buy or not?
I definitely would buy the product if I wasn't worried about outliving the insurance company!
__________________
BobbinChina is offline   Reply With Quote
Old 10-04-2012, 11:00 AM   #15
Full time employment: Posting here.
Tyro's Avatar
 
Join Date: Aug 2012
Location: Upstate
Posts: 699
Quote:
Originally Posted by EvrClrx311 View Post
Some leading geneticists speculate that children born today may have the choice to live to 200 (or even 1000).
Choice? I saw that movie too! In Time - Wikipedia, the free encyclopedia

Tyro
__________________
Tyro is offline   Reply With Quote
Old 10-04-2012, 12:10 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Can We Resurrect the Dead? : Through The Wormhole : Science Channel
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 10-04-2012, 03:43 PM   #17
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Independent View Post
IMO, it makes a lot of theoretical sense.
I could use a small portion of my total assets to provide protection against running out of money after age 85, while still controlling most of my money.
I don't need an insurance company to invest the money I'll spend in the next 20 years.
This is the reasoning I went through when I was 23 and I began paying into my TIAA-Traditional. I was thinking of guaranteeing income at retirement, rather than if I reached 85. Still my comparatively small contributions have had 28 years to compound and I will turn the into an SPIA at some point.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 10-04-2012, 07:37 PM   #18
Recycles dryer sheets
 
Join Date: Sep 2012
Posts: 98
Quote:
Originally Posted by Dino1 View Post
As far as I can understand, it is a deferred annuity where you put a lump sum down in your fifities or sixties and begin to collect a pretty good payout at age 85 (if you live that long). Anyone have any experience with them? Opinions? It seems to be a good way to avoid running out of cash in your later years.
I'm a little late in answering this but I have bought 4 deferred annuities. I'm 45 and wanted them to start paying at 65. I have no pension so my intent was to create a pension from diversified sources (hence the 4 different companies). I had trouble finding competitive plans that compounded for 20 yrs. So I'm not sure if there will be many that go longer than that.

If you do go this route be prepared to spend alot of time looking at them. All the agents had something but no one had all the plans so you have to shop around alot. In addition you really have to be on your toes to dig through the information and understand it yourself. Don't rely on what the agent tells you as it is often just a part of the story.

The thing to remember is that annuity products are meant to address a certain situation, not to be the end-all be-all for every situation. Although some agents try to pitch them that way. A good way to look at them is as an insurance product, not an investment. I bought myself a pension. I do not expect to see the principal again as a lump sum. I also got some LTC insurance as two of my plans double the payment for certain situations. In addition one of my plans is a variable annuity so tracks more with the market than the others. The other three are called "equity indexed annuities" but really that is just a game the insurance company plays to make people feel they are participating in the market. The fees will eat up the account. What your really getting is the minimum guarantee that they offer in their 'bonus' and their 'guaranteed roll-up rate'.
__________________
Sun456 is offline   Reply With Quote
Confusion
Old 10-04-2012, 07:46 PM   #19
Recycles dryer sheets
 
Join Date: Jun 2010
Location: Southwest Florida
Posts: 326
Confusion

I think there is some confusion in this discussion between a deferred annuity and longevity insurance.

With a deferred annuity you deposit funds with the insurance company and can elect to annuitize at a later date or withdraw funds from the contract, often subject to a penalty.

Longevity insurance is a pure and simple single premium immediate annuity with the only difference being a deferred beginning date. With the usual SPIA the initial payment must begin in one year. With a longevity contract you agree on the exact payment and the exact beginning date at the time you purchase the contract. Normally the insurance company will not allow you to set this date past age 85, or the day before your 86th birthday. This is an irrevocable payment to the insurance company for an agreed upon payment beginning at a fixed date. There is no possibility of cancellation or a premium refund, just as in the case of the usual SPIA. 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
__________________
Gill is online now   Reply With Quote
Old 10-04-2012, 08:02 PM   #20
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by MBMiner View Post
I think there is some confusion in this discussion between a deferred annuity and longevity insurance.

With a deferred annuity you deposit funds with the insurance company and can elect to annuitize at a later date or withdraw funds from the contract, often subject to a penalty.

Longevity insurance is a pure and simple single premium immediate annuity with the only difference being a deferred beginning date. With the usual SPIA the initial payment must begin in one year. With a longevity contract you agree on the exact payment and the exact beginning date at the time you purchase the contract. Normally the insurance company will not allow you to set this date past age 85, or the day before your 86th birthday. This is an irrevocable payment to the insurance company for an agreed upon payment beginning at a fixed date. There is no possibility of cancellation or a premium refund, just as in the case of the usual SPIA. 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
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.
__________________

__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun 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


 

 
All times are GMT -6. The time now is 03:01 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.