Longevity Insurance???

[Gill]

You say the payout in 15 years is 12%. 12% of what and for how long? There is no way you can be guaranteed a payout of that magnitude without a return of principal.
Bruce

 

[Sun456]

Hello - I had a look at a couple of companies, including Hartford, MetLife, and New York Life. The terms of their deferred annuities were broadly similar. The payout in 15 years is about 12%..

Thanks! Can you give me the exact name of the program so I can try to get ahold of the materials? I'm sure you know how it is. These companies have 100s of programs and slogging through the details can be difficult.

 

[Gill]

Thanks! Can you give me the exact name of the program so I can try to get ahold of the materials? I'm sure you know how it is. These companies have 100s of programs and slogging through the details can be difficult.

I hope you don't really believe a company can guarantee you 12% income in an environment where 10-year Treasurys are yielding about 1.5%.
Bruce

 

[Nords]

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.
Anyway, I'm sure if this could be profitably sold that some companies would already be doing it.

Sounds like a great Kickstarter project. The challenge would not be getting a certain dollar amount, but rather a certain headcount.

Preferably of overweight smokers who can't do math...

 

[73ss454]

Yes. Guaranteed in writing.

I think you should take the time to read the other 200 pages of disclosures before you bet on 12%.

 

[73ss454]

Thanks! Can you give me the exact name of the program so I can try to get ahold of the materials? I'm sure you know how it is. These companies have 100s of programs and slogging through the details can be difficult.

I think the name of the program is the Bookmaker Program. Go see the guy with the long trench coat that hangs out at the corner pub.

 

[obgyn65]

Sending you a personal message with the exact name of the deferred annuity.

Thanks! Can you give me the exact name of the program so I can try to get ahold of the materials? I'm sure you know how it is. These companies have 100s of programs and slogging through the details can be difficult.

 

[obgyn65]

So if you give $30,000 today for example and the payout in 15 years' time is $3,600 a year, what is the rate ?

You say the payout in 15 years is 12%. 12% of what and for how long? There is no way you can be guaranteed a payout of that magnitude without a return of principal.
Bruce

 

[obgyn65]

Well I am one of the most conservative investors on this website, but I am still willing to put some money into deferred annuities each year until I reach 62. I am not suggesting anyone here does the same.

I think you should take the time to read the other 200 pages of disclosures before you bet on 12%.

 

[obgyn65]

It's ok to disagree with me. I like deferred annuities because I am still relatively young, so the payouts in 15 years are significant. Does not work for everyone in every situation though. I will not invest more than $250k-300k in all (maybe 10k-20k a year until I reach 62 - if I reach that age).

I think the name of the program is the Bookmaker Program. Go see the guy with the long trench coat that hangs out at the corner pub.

 

[obgyn65]

Hello - again, if you give $50,000 today for example when you are 47 and the payout when you reach 62 in 15 years' time is $6,000 a year, what is the rate then according to you?

I hope you don't really believe a company can guarantee you 12% income in an environment where 10-year Treasurys are yielding about 1.5%.
Bruce

 

[Khufu]

Hello - again, if you give $50,000 today for example when you are 47 and the payout when you reach 62 in 15 years' time is $6,000 a year, what is the rate then according to you?

I am certain that this payment includes return of principal because it is too high otherwise and how else is the carrier going to return your principal, a lump sum payment the day before you die? But a return of principal has the advantage that it is not taxable so that the taxable equivalent rate would be somewhat higher depending on tax rates, bracket, etc.

 

[obgyn65]

There is no mention of any 'return of principal' in the documentation provided to me.

I am certain that this payment includes return of principal because it is too high otherwise and how else is the carrier going to return your principal, a lump sum payment the day before you die? But a return of principal has the advantage that it is not taxable so that the taxable equivalent rate would be somewhat higher depending on tax rates, bracket, etc.

 

[steelyman]

You say the payout in 15 years is 12%. 12% of what and for how long? There is no way you can be guaranteed a payout of that magnitude without a return of principal.
Bruce

I also think the information provided is too brief/cryptic to figure out a true rate of return. I get that $6K is 12% of $50K, but that's a single payment 15 years down the road and you would have to assume a zero rate of return - i.e., the initial $50K investment is still worth $50K after fifteen years - to say you've gotten 12%.

I think if you invested about $9135 today and received an annual (compounded) rate of 12%, you'd end up with $50K in 15 years, which would then give the 12% payout of $6K (for the first year, anyway).

 

[obgyn65]

I only said the annual payout in 15 years' time on my investment represents about 12% of my initial payment. I am not saying I am getting 12% interest, yield or rate of return today on my payment. I understand my payment is gone.

Please check here: http://www.investmentnews.com/article/20121002/FREE/121009981

I am not trying to sell anything to anyone. I only answered this thread about longevity insurance.

I also think the information provided is too brief/cryptic to figure out a true rate of return. I get that $6K is 12% of $50K, but that's a single payment 15 years down the road and you would have to assume a zero rate of return - i.e., the initial $50K investment is still worth $50K after fifteen years - to say you've gotten 12%.

 

[obgyn65]

It's ok, I am only putting less than 1% a year of my approximate NW in these annuities. It's an easy bet I am happy to make.

I think if you invested about $9135 today and received an annual (compounded) rate of 12%, you'd end up with $50K in 15 years, which would then give the 12% payout of $6K (for the first year, anyway).

 

[Gill]

So if you give $30,000 today for example and the payout in 15 years' time is $3,600 a year, what is the rate ?

It's certainly not 12%. The rate is determined by a fraction with $3,600 being the numerator and the value of the fund in 15 years as the denominator. You're fooling yourself if you think you're getting 12% on your money unless you're happy having it non income producing for 15 years.
Bruce

 

[EvrClrx311]

Choice? I saw that movie too! In Time - Wikipedia, the free encyclopedia

Tyro

Looks like an 'interesting' movie... wonder how I never knew about that one. One of the downsides to DVR is that I never know when good movies are coming out anymore

 

[Chuckanut]

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

HA, don't confuse us with logic.

 

[nun]

It's ok, I am only putting less than 1% a year of my approximate NW in these annuities. It's an easy bet I am happy to make.

I'll probably have about 10% of my investments in TIAA-Traditional when I retire. It's part of my safety net of guaranteed income and as I LBYM that net will provide all my requirements for retirement income leaving 90% of my money to compound.

TIAA- Traditional gets a minimum of 3% a year, it's usually much more- 4.2% this year. I'll buy a SPIA with it when I stop working. Surely all annuities involve return of principal. That's the whole point! You die you g and the company gets to keep your principal.

 

[MasterBlaster]

I only said the annual payout in 15 years' time on my investment represents about 12% of my initial payment. I am not saying I am getting 12% interest, yield or rate of return today on my payment. I understand my payment is gone.

Please check here: http://www.investmentnews.com/article/20121002/FREE/121009981

I am not trying to sell anything to anyone. I only answered this thread about longevity insurance.

Ok, I was thrown by the 12%...

If you put in a $30k lump sum, let it compound at around 5.5%, wait 15 years and then (after 15 years) draw interest at around 5.5% then the payout will indeed be around $3600/year.

The interest rate that everyone should key on here is the annual return on principle of (around) 5.5% not the posted 12% return on the original investment.

 

[nun]

It's certainly not 12%. The rate is determined by a fraction with $3,600 being the numerator and the value of the fund in 15 years as the denominator. You're fooling yourself if you think you're getting 12% on your money unless you're happy having it non income producing for 15 years.
Bruce

Yeah the insurance company is taking the payments and giving the customer some return minus a couple of percent for them.......to come up with a principal amount for the annuity. The payout will be some fraction of principal adjusted for mortality and some below market gain. You're buying the guarantee and giving up individual return. This isn't such a bad deal as it insures you against failure

 

[Sun456]

I don't think zero coupon bonds do something similar to annuities or longevity insurance. I bought annuities to provide me with a guaranteed income for life. I just looked up zero coupon bonds on Fidelity and they appear to be fairly low yield bonds just like other bonds are paying today. I have laddered bonds maturing over the next 8 yrs at about a rate of $100K per year so don't really need any more bonds. The rates are nothing to write home about and I then have to decide where to put the money in whatever the economic climate is. When I get older my annuities will be chugging along spitting out money and require no thought what so ever to keep doing so. I'm very tired of the stock roller coaster...

 

[obgyn65]

Sorry for any typos as I am typing from iPad. Agree with below. sorry if I did not express myself correctly. Again I don't work in finance - and my native tongue is not English.

The interest rate that everyone should key on here is return on principle of (around) 5.5% not the posted 12% return on the original investment.

 

[Independent]

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.

I've thought about the same general idea, but to me it was a transparent way to do an SPIA.

I'm not sure why you need an insurance company for your idea. A mutual fund company could sponsor the same thing. (You would need an insurance company if the sponsor guaranteed that if less than x% of the buyers actually died, then sponsor would make payments as if x% had died.)

BUT, the common wisdom is that "tontines are illegal in most states". I've never pursued the issue to determine when a legal annuity becomes an illegal tontine.