chinaco
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Feb 14, 2007
- Messages
- 5,072
All this talk about pensions, annuities, etc.
This topic has been discussed before. I found this Financial Analyst Journal (from CFA Institute) Paper on Longevity Annuities and thought I would post the link.
http://corp.financialengines.com/employer/FE-LongevityAnnuity-FAJ-08.pdf
The author describes this type of deferred annuity as insurance against longevity. He uses a property and casualty insurance example. Insure your house with a lower premium (compared to the value of the house). If your house burns down, you get paid... if not your benefit was risk mitigation.... you did not need to keep reserves for the entire cost of your house to rebuild it just in case it burned down. For this type of deferred annuity, if you make it to the specified age... you get the annuity income, if not you die before that you get nothing. The stated benefit is that since you would have an old age income safety net... you can freeing up more savings to spend today with the net result of a higher spending level compared to funding retirement with bonds.
The author does describe some basic situations and circumstances where this approach might be an attractive income funding tool or where some would avoid it.
It is an interesting concept... the survivors in the money pool leverage the assets of the people that die early. Both groups (survivors/winners and deceased/losers) have the old age income safety net to feel more secure spending more of their money (savings).
I presents an interesting thought on immediate annuities vs longevity annuities in Figure 2.
Good idea, bad idea... you decide.
This topic has been discussed before. I found this Financial Analyst Journal (from CFA Institute) Paper on Longevity Annuities and thought I would post the link.
http://corp.financialengines.com/employer/FE-LongevityAnnuity-FAJ-08.pdf
The author describes this type of deferred annuity as insurance against longevity. He uses a property and casualty insurance example. Insure your house with a lower premium (compared to the value of the house). If your house burns down, you get paid... if not your benefit was risk mitigation.... you did not need to keep reserves for the entire cost of your house to rebuild it just in case it burned down. For this type of deferred annuity, if you make it to the specified age... you get the annuity income, if not you die before that you get nothing. The stated benefit is that since you would have an old age income safety net... you can freeing up more savings to spend today with the net result of a higher spending level compared to funding retirement with bonds.
The author does describe some basic situations and circumstances where this approach might be an attractive income funding tool or where some would avoid it.
It is an interesting concept... the survivors in the money pool leverage the assets of the people that die early. Both groups (survivors/winners and deceased/losers) have the old age income safety net to feel more secure spending more of their money (savings).
I presents an interesting thought on immediate annuities vs longevity annuities in Figure 2.
Good idea, bad idea... you decide.