An annuity in anticipation of medical breakthroughs

[markf57]

Let me say that this thought of mine is WAY out in left field, but I would like to propose it to this group and get you opinion.

I expect that there will be a number of major medical breakthroughs in the next 25+ years that will greatly extend the lifespan of humans. It would seem to me that if a person were to purchase and annuity before the breakthroughs are discovered that they could easily win the annuity gamble.

My questions are many. Is this a logical thought? How soon would mortality tables be revised if something like this happened? Is it worth the gamble?

I would also expect that an event like this would completely break Social Security if it were not already completely broken at the time it happens. I also wonder what the long-term effects would have on insurance companies that already had a lot of payouts to make based on pre breakthrough policies.

Thanks,

Mark

 

[brewer12345]

I think this is nuts, but here's a few answers to your questions.

- Mortality tables are revised infrequently (once a decade or so), but individual insurance companies are free to underwrite price their products as they see fit. So you have constant competitive pressure to price aggressively and assume that mortality trends keep improving, or "table shave" (count prospective insureds as a better risk than they really are) and count on medical technology to keep sick people alive longer than more conservative underwriting would dictate. Ultimately, much/most of this risk resides with the reinsurers rather than the primary insurer.

- Most annuity writers also have very large blocks of life insurance, which tends to serve as an economic hedge. So if mortality improves dramatically, you lose on payout annuities but you gain on life insurance, and vice versa.

 

[markf57]

brewer12345:

I have been lurking for a while and I know that you know a lot more than me. I kind of thought it was nutty too, but I do appreaciate your response.

Thanks,

Mark

 

[brewer12345]

markf, I said "nutty" because it is (IMO) wild speculation, and most insurance companies price their payout products with very conservative mortality assumptions (i.e. they assume that there will be improvement in the future AND that the longer lived people are the ones buying the payout annuities in the first place). So using a payout annuity to "bet" on radically lengthened lifespans in the future doesn't make a lot of sense since the "option" embedded in the annuity is so far out of the money.

 

[MJ]

Let me say that this thought of mine is WAY out in left field, but I would like to propose it to this group and get you opinion.

I expect that there will be a number of major medical breakthroughs in the next 25+ years that will greatly extend the lifespan of humans. It would seem to me that if a person were to purchase and annuity before the breakthroughs are discovered that they could easily win the annuity gamble.

My questions are many. Is this a logical thought? How soon would mortality tables be revised if something like this happened? Is it worth the gamble?

I would also expect that an event like this would completely break Social Security if it were not already completely broken at the time it happens. I also wonder what the long-term effects would have on insurance companies that already had a lot of payouts to make based on pre breakthrough policies.

Yeh, I have that worry too. With my higher inflation assumption, I am going to run out of money when I reach 100, that's only 41 year from now.

MJ

 

[Zipper]

The older you get Mark, the more you will see that that is a truly nutty assumption.

The best you can hope for is to RE and enjoy yourself each and every day.

I can still see Nixon on TV some 30+ years ago declaring war on cancer.
Mrs. Zipper works in a regional Cancer Centre and the numbers are not good.

Look at all the slobs in the mall! Do you think the 300 lbs. patrons waddling out to the car are going to beat the clock?    Will they will even get to collect SS or CPP?

Instead of dying of heart disease in their 40's and 50's they might be able to buy a decade.

And now we have diabetes becoming rampant, drug and alcohol abuse out of control and the possibility of avian flu or some other SARS like disease catching on, and I'd say that you, me and the rest of the ER's on here that have looked after themselves will be okay.

But for the general population? Nah! Health Care has the potential to be an all consuming monster.

 

[LRS]

I read somewhere that prospects were good for increasing the average human lifespan well beyond 100  years. Lifespans of up to 125-150 are theoretically possible (before you snort, remember that at least one person has been verified to have lived to 124 years of age and more and more people live beyond 100 every passing year.)

The trouble is, doctors can expand the old age portion of life but they can't expand youth. Science is stretching out the least enjoyable period of life, the part at the end where everything hurts and more and more medical intervention is necessary to sustain life.

So I don't think Markf57's thoughts are way out in left field. It's a good question. Although maybe we should ask, what will we do when our lives are stretching beyond the quality years? Will we want to live at all costs, or will we have the grace to let go at the right time?

 

[cute fuzzy bunny]

Its not nutty at all, imo.

But just think of how that might affect your investment allocations. Makes Nords' "invest like you're immortal" mantra seem like a pretty good idea...

 

[pbrane]

I've had the same thought recently. And I've sort of been following the longevity research the last decade or so. A number of good books on the subject, including Ray Kurzweil's "Fantastic Voyage: Live Long Enough to Live Forever." Pretty exciting stuff. How ironic though....we might conquer aging, only to have discovered that our habitat (planet Earth) is ruined- by either global warming or some other catastrophe...

Anyway, I also looked into immediate annuities recently and thought "what effective rate would I be getting if I lived to say...125? But plugging in the numbers into a simple calculator and it only goes from around 6% (if I live to the expected 80 or so) to around 7.2% if I lived to 125.

pb

 

[bosco]

I think this is nuts, but here's a few answers to your questions.

perhaps a little factual research would be in order prior to just stating the "conventional wisdom."

you might start your education with a look at the following website.

http://www.gen.cam.ac.uk/sens/

this is a respected Cambridge professor who maintains that aging is a genetic problem, and a problem susceptible to engineering solutions. He maintains that anyone 30 years old or younger has a 50/50 chance of having a life expectancy of 1000 years, or essentially one based upon accident rates. It could go up to 5000 years if people learn to minimize the risks they take (the 1000 years is based upon accident statistics).

Many other academics disagree with him, but basically deGrey's opinion is that it is more an issue of developing the social will to fund the research than it is the technological impediments. That there is strong public bias (as evidenced by the quote) is perhaps the biggest obstacle. Also, that there would be cataclysmic social and demographic changes is undeniable.

Also worth a look is Ray Kurzweil's "The Singularity is Near."

I'm not saying that I am counting on any of this, but it does cause me to hold some biotech stock in what I think of as a "rejuvination pot" and think in terms of not depleting a portfolio's real value with too agressive of a withdrawal rate--you may be around longer than you think.

 

[brewer12345]

perhaps a little factual research would be in order prior to just stating the "conventional wisdom."

Actually, what I thought was nuts was the buying of an annuity. I don't really have a iew on likely mortality improvements over time, although if they don't materialize there will be some life insurance reinsurers who will be in a lot of trouble.

I have to admit that I think all this long lifespan stuff is likely wishful thinking on the part of those who really can't believe that some day they will eventually be dead, but that's about as much as I have thought about it.

 

[bosco]

Actually, what I thought was nuts was the buying of an annuity. I don't really have a iew on likely mortality improvements over time, although if they don't materialize there will be some life insurance reinsurers who will be in a lot of trouble.

I have to admit that I think all this long lifespan stuff is likely wishful thinking on the part of those who really can't believe that some day they will eventually be dead, but that's about as much as I have thought about it.

I apologize--I misinterpreted the "nuts" comment. I agree, there may be wishful thinking involved. But having looked into it somewhat, I've concluded that it is probably inevitable that human lifespans will be extended radically. For it to happen in our lifetimes, however, is probably a long-shot.

It's definitely an interesting thing to think about. If you want to read some stuff where people are really doing what they can using what's known today, check out

http://www.calorierestriction.org/

Many of these are willing to undergo serious denial now in the hopes that they can hang around long enough for the technology to kick in. Not for me.

Personally, I don't have that kind of singlemindedness or self-discipline even though I believe that a restricted calorie regimen improves a persons health and cardiovascular risk factors tremendously. I'd prefer to live a little less long and not be cold, hungry, and impotent a lot of the time. Guess it's about values. I could, however, stand to drop 20 or 30 pounds

 

[TromboneAl]

I also agree that it's possible that a breakthrough could result in very long lifespans. However, I figure it's not as simple as finding some genetic switch to turn off aging, for the following reason: I've never heard of anyone living a few hundred years or more. 124 is impressive, but if there was some simple genetic cause for aging, I'd expect that there would be some mutant who's lived 500 years and looks like he's 28.

 

[free4now]

I'd look at this as any other attempt to capitalize on a perceived market inefficiency... My general feeling is that the market as a whole is smarter than I am because on aggregate it takes account of almost all information, whereas I personally can only take in and act on some subset of information.

Similarly I would suspect that whatever information you have leading you to believe that lifespans may increase is also available to the actuaries that make up the death tables for the annuity companies. And the actuaries probably have access to much more information on which to make a good decision. So unless you have actual actuarial experience, I wouldn't try to outguess them.

 

[Tadpole]

On the surface, it seems like a safe idea. But most annuities are not guaranteed if the company goes broke. If too many people bought annuities based on insurance mortalities that were that wrong, the companies would eventually file for bankruptcy (chapter 11) and a lot of people would have gambled poorly. Of course, if you are one of a few who get that idea, the companies won't be too bad off and you win. In fact, I have often thought that I hope I live long enough to see if the massive rush to selling annuities to boomers ends up to be a disaster for the insurance industry.

 

[cute fuzzy bunny]

it ever occur to anyone that we might not WANT to live past 100?

See: "time enough for love" / lazarus long

 

[Nords]

it ever occur to anyone that we might not WANT to live past 100?

See:  "time enough for love" / lazarus long

Yeah, but it took him a couple millenia to get tired, and then he got rewired!

 

[cute fuzzy bunny]

Some of us are overachievers though...