Also referred to as Deferred Income Annuities, a Longevity Annuity is a contract between an individual and the insurance company underwriting the annuity. The individual (insured party) makes a premium deposit in the annuity contract today in return for a guaranteed stream of income for the annuity owner’s life which will begin at a future date.
The resulting stream of income is based on the amount of premium that is deposited, the age of the owner of the contract at the time of application, the life expectancy of the contract owner, and the time period in which the income will be paid. It’s important to note that any fluctuations in the market will not have an impact on the payments from the insurer, and in some cases, the contract owner is allowed to deposit additional funds in their annuity. Additional deposits will, however, have an impact on the annuity’s income stream.
A prospective annuity owner can easily determine their income stream by using an online annuity calculator that are typically posted on the website of insurers who offer annuities.
The Difference between Longevity Annuities and Immediate Annuities
In most cases, a longevity annuity will pay out significantly more than an immediate annuity. This difference provides for future retirees to have options in the manner in which they receive their income. Using the first option (longevity annuity), the contract owner would deposit capital into the annuity account and then defer taking payments for twenty years.
Using the second option (immediate annuity), the contract owner would wait until later years in their retirement to deposit capital into the account and then begin to receive a payout immediately. In either case, the retiree will receive more money by electing the first option because the funds in the annuity account would have additional time to earn interest.
Option Benefits provided by the Longevity Annuity
In almost every case, money that is deposited into a longevity annuity is exchanged for a future income. This typically leads to the concern of retirees about how the income stream will pass to their heirs (beneficiaries) in the event of the contract owner’s passing. To mitigate this common concern among retirees, most insurers offer a death benefit rider with their annuities. The death benefit rider provides the option for a beneficiary the remain funds in the account if the contract owner dies within a specific time period.
An additional rider that is typically available is known as an inflation protection rider. This rider provides an increasing guaranteed income payment of a fixed percentage to protect the contract owner’s earning power.
There are other optional riders available at an additional fee which typically reduces the income payments from the annuity. The Longevity annuity offers the investor a guaranteed income for their lifetime in addition to higher payouts than other types of contracts. The Longevity annuity is a strong solution for anyone who is concerned about outliving their assets.
Why Longevity Annuities deserve Your Attention
- Riskier investment can be planned much easier – When you add a longevity annuity to other investment products in your portfolio it makes retirement planning much easier. When you know you have a guaranteed income stream to cover most of your expenses, it enables you to consider riskier investments that will likely deliver a higher yield.
- Your Savings are immune to a volatile Market and your Income is Guaranteed. When you allocate funds to an annuity rather than risking it in the market, those funds will not be affected by stock or bond market swings. Also, when you select the refund at death option, you’ll be certain that remaining funds in your account will pass on to your beneficiaries.
- Unlike the majority of investment products, a longevity annuity is actually very simple. For each dollar you are willing to contribute, the insurance company will specify how much you’ll receive each and every month beginning when you retire and continuing for a lifetime.
Is a Longevity Annuity right for You?
As with any investment and insurance product, your circumstances and expectations will determine whether a longevity annuity is a good fit for you. The first step is to speak with an investment professional and get some help to determine where you want to go and the best way to get there.