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Low Returns and Longer Life Means More Savings, Longevity Products for Retirement


A recent publication from Wealth Management states that employees need to increase the amount that they are saving for retirement by at least 40% in order to support their lifestyle once they’ve stopped working. According to an article from Barron’s, a combination of longer life expectancy and low bond returns is being blamed for apparent shortcomings.

The specific numbers were taken from a research paper written by the financial experts at Morningstar and The American College of Financial Services. The authors of the paper concluded that the cost of $1 of income through inflation-adjusted annuity is now 50% higher than in 2000.

“The same factors create challenges for today’s retirees relying on bond ladders or annuities for income,” Financial Planning stated.

Researchers further concluded high-earning households that begin saving at age 25 need to set aside about 9% of earnings (including both employers’ and employees’ contributions, assuming returns remain low. For those who start saving later, the challenge quickly adds up. The worker who starts at 35 would need to save 14.3% in a high return environment, and a staggering 24% with a low-return strategy. Unfortunately, the Employee Benefit Research Institute says that half of workers only save 14% or less, with 27% saving under 10%.

Obviously the historically low-rate returns are a major contributor to this issue, but longevity is also very much to blame. Life expectancies of those age 65 has risen by more than 10% since 2000, the Society of Actuaries has reported. The average age of men is now 86.6 years and women, 88.8 years. That’s a long retirement to fund.

Longevity insurance is an annuity policy specifically designed to provide lifetime income to individuals who expect to have long lifespans. It’s like the opposite of life insurance: whereas life insurance insures loved ones in the event that you die prematurely, longevity insurance insures that you’ll have money if you live an unusually long time. For more information about longevity insurance, click here.

Written by Rachel Summit

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