A recent article on Cincinnati. com by insurance agent J. Brendan Ryan gives some added insight into the importance of using annuities with longevity insurance. In “Longevity insurance may be for you,” we are reminded of all of the risks associated with retirement, not the least of which is longevity risk. While many people don’t worry about living too long, there is a real danger of living longer than your money will last. Annuities are a great way to grow money tax-deferred and a lot of people use them for that purpose. But they are also an important way to receive retirement income that you cannot outlive.
Whether you purchase an immediate annuity to receive income right away or defer your annuity until some point in the future, you have the option of receiving income over the rest of your lifetime. Your payout is based on a number of factors like age and life expectancy. For those who live longer than their life expectancy, they have gotten a “mortality gain.” If you die sooner than expected, it is a “mortality loss.” There is a lot of focus given to the worry that one will die suddenly and “lose” the money put into their annuity. Thinking of annuities as longevity insurance is a good way to remember why they are so important. You use insurance to protect you in case you total your car or your house burns down. If those things don’t happen, you aren”t upset that you protected yourself just in case. Think of annuities the same way; if you don’t live longer than your life expectancy, you at least were protected just in case you had.
Longevity insurance is a new product and not many annuity suppliers know much about it. It is, in essence, an annuity. You make a lump sum payment and your money is held for a specified period of time. If you are alive at that point in the future, you will receive annuity payments for the rest of your life. In the riskiest form, you would not receive any refund if you died before the specified date. But by taking smaller payments in the future, you could add death benefits or make your annuity joint with a spouse. It’s up to you to decide what type of annuity you want with your longevity insurance.
Written by Rachel Summit
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