Longevity Insurance... Does it make sense?

[chinaco]

See this link

http://biz.yahoo.com/brn/070501/21793.html?.v=1&.pf=retirement#1


Pay a little, just in case. Is this a good bet to hedge outliving assets?


Is this an effective strategy to enable us to spend down more money when we are younger?

 

[REWahoo]

"An annuity by any other name would smell as sweet."

- William Shakespeare's insurance agent

 

[chinaco]

Where are all of the annuity harpys when you need them?

Come on people. Is the late life deferred annuity a good way to hedge against outliving one's money? Is it a cost effective approach? They seem to only kick in if you live till 85. OR is it just a bad idea? It seems to me that a small % will actually collect.

But the idea seems that this instrument would allow one to spend more money in the early years?

Are there other creative ideas on how can one hedge against living longer than expected (run out of money)? (Other than x% swr)

It seem to me that the insurance company is hoping the opposite compared to a life policy. On a life policy they hope you live long. On this thing they hope you will croak young. Kinda like a short sell.

 

[mathjak107]

immeadiate annuties can work well for some. if your interested in getting the biggest monthly draw vs the biggest pile at the end they work well.

you couldnt do the same thing on your own because the insurance companies have a big advantage you dont. A PILE OF DEAD PEOPLE. its not just the return on investments they get but the forfetures of the dead that enable them to pay a higher rate for life than you can get with a pile of bonds

 

[Gene]

My adviser is pushing me toward a variable annuity (15% of total assets) to "secure the gains". (He's said that the newer annuity contracts are much better than what's been offered previously.) Most of everything (90%) of my portfolio is in self directed IRA's, so there's no tax advantage to the annuity.

I think there may be better ways to "secure the gains" without paying the additional charges for the annuity contract.

Any thoughts?

Gene

 

[mathjak107]

most variable annuties are trash, high fees,poor returns , surrender fees etc. they are poor proxies for a stock investment.

having said that; fidelity and possibly vanguard offer some very low cost ones that i have thoughts of utilizing not as a stock investment but as a kicker to bring up my income stream with guarantees. even after fees in an up market they should do better thanmy bonds or cd's.

 

[chinaco]

most variable annuties are trash, high fees,poor returns , surrender fees etc. they are poor proxies for a stock investment.

having said that fidelity and possibly vanguard offer some very low cost ones that i have thoughts of utilizing not as a stock investment but as a kicker to bring up my income stream with guarantees. even after fees in an up market they should do better thanmy bonds or cd's.

I am looking at it as a pure investment, rather as a hedge. However, it might be a poor (or less effective) hedge!

 

[mathjak107]

i think to use them right you really need to know why and where you will use them. id never keep them as part of my stock portfolio, hedge or no hedge, they stink.

but there are uses where they fit very nicely although i admit im still analyzing the idea of using the ones with principal protection or guaranteed interest floors and equity indexed to bolster my income section.

 

[mathjak107]

did you know most index linked variable annuties dont count the dividends. since dividends account for almost 1/3 of the s&p's return right out of the box your screwed. they also have caps most of the time limiting your gains in soaring markets so read read read the info very carefully for whatever you are thinking of buying.

 

[chinaco]

The primary benefit... if there is any is the pooling of money effect. The idea is if you live longer than expected... it creates an income stream in very old age.

It might be a bad deal in terms of a comparison against an investment... but If you live to be very old... you get the money. Hence the hedging effect. 10 people buy it 6 die before 85. The remaining 4 benefit.

I will admit... I have not run the numbers on it. And some of this is dependent on how the product is structured and the age at which it was purchased. If I considered this variation on a deferred annuity... It would purely be as a hedge.

If I were buying an annuity to supplement an income stream, it would be a SPIA... (Slightly different reasons... but similar).

 

[Gene]

Wow! I had no idea these varable annuities don't count dividends. What's up with that? Who (need I ask) gets them?

Thanks to all who's responded to my question. This is a great web site. I'm new to this.

Gene

 

[mathjak107]

yep check the annuity to see about the dividends, its a major issue in quite a few that are indexed linked,especially if they offer any kind of guarantee of min. interest rate.

 

[Gene]

-A little more about me- I've just turned 60. I've got 545k in investment $'s, the house is paid off (worth about 260k), and no debt to speak of. If I take 150k-200k and stick into a V.A. what does that do for me if the market goes caput? It only protects 200k. At 4% withdrawal that's only 8k per year (plus S.S.). I'd rather move someplace else with my money than to give a higher percentage to the financial planners. Or am I being too greedy and being unreasonable in my thinking?

Gene

 

[mathjak107]

first question, the annuity your looking at,is it index linked and stock invested or is it invested in interest bearing instruments? im not sure what your buying. what kind of overall return on your total portfolio do you need?

 

[Gene]

To be specific, it's the American Legacy III View variable annuity, underwritten by Lincoln Financial Group. The sub accounts will be managed within the American Group of mutual funds (Where my IRA acounts are currently).

Gene

 

[mathjak107]

i know nothing about what that is ... you really have to look at your overall allocations and see where that annuity fits in. with out knowing any of the details of it i cant say whether it belongs in the stock bucket, whether anything is guaranteed and what the projected returns are.