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In this Discussion

  • BobC December 2012
  • hank December 2012
  • msf December 2012
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  • edited December 2012
    It seems ironic that as boomers reach the age where annuities might have some appeal (and possibly solve some planning issues), interest rates in general have fallen so low they appear to be a poor and potentially risky option.

    I guess in life (and financial markets) all things eventually even out. We rode the boom in housing, spiked the 70s inflation with outsized consumption and helped push up stocks in the 90's with tax-sheltered plans. While it's hard to assign cause and effect in such matters, we may have unwittingly contributed to today's dismal rate environment as our spending slowed and our (investment) risk appetite subsided.
  • Since the article mentioned Milevsky, and he's been very active in analyzing annuities (living benefits come to mind), here's his brief (5 page, "typewritten", double spaced), plain talk explanation of longevity insurance.

    If you'd like a more analytic (albeit still moderately short) analysis of fixed annuities, focused on longevity insurance, here's a CFA continuing ed paper:

    It calculates how one can increase the amount one can safely spend each year by annuitizing - and achieve a similar result by annitizing a small portion of one's portfolio via longevity insurance. (If you don't want all the numbers and graphs, skip to the conclusion section.)

    Finally, as near as I can tell, there's little difference between so called longevity insurance and the traditional deferred fixed annuity. The best guess I have (and this is a link to an insurer's PR release, albeit with what I believe to be an accurate footnote) is:
    Longevity Insurance refers to a concept, not the name of an insurance product. Some states define longevity insurance as an annuity with a payout option only and with no death benefit.
    The "payout option only" means that you can't withdraw money without annuitizing (and you're committing to annuitize at age 85, or some other future age). "No death benefit" means that if you don't live to annuitize, poof - all gone. The virtue of this configuration over the traditional deferred annuity is that the payout (you should live so long:-) is much higher. It is truly insurance - a planning instrument, not an investment vehicle.

  • Immediate fixed annuities have a place in some folks' retirement arsenal. But as was already noted, current yields are not attractive enough to make this kind of guaranteed income doable. That will change, of course. It is still amazing to me how many con artists, (oops, I mean salespersons) there are ready to sell high-priced and high-expenses products that are tied in some way to the market that "guarantee" 5% or 6% or better. And these folks prey on seniors who think their bank or insurance agent would never put them in something that is not right for them. It is, course, just right for the folks who sell them and their companies. Fortunately we have been able to get money back for a few people who came to us right after they were sold one of these, prior to the refund expiration date.
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