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Longevity insurance is a special kind of deferred annuity that assures you’ll have a guaranteed income forever, even if you live to 100 or beyond. The longevity annuity hedges against the financial risk of living a very long life. The longer you delay taking payments and the more advanced age you start taking them, the greater the monthly payout. Most buyers choose to start taking payments when they turn 80 or older. The most efficient way to protect against outliving your assets in very old age.

 

Turn some of your retirement savings into a guaranteed lifetime income.  Longevity insurance or longevity annuities, also called Qualifying Longevity Annuity Contract (QLAC) are the safety net of your retirement income planning.  Your investment today into a longevity annuity is buying a future lifetime income stream, which requires investors to commit less money at purchase.  Built for lifetime income, a longevity annuity can guarantee you income for later in life as long as you live without a health underwriting background check.  Because your future income is already guaranteed with a longevity annuity, you may have the confidence and the opportunity to take money earlier in retirement or invest somewhat more aggressively such as a larger stock market exposure. Many retirees would be able to boost their withdrawals by 20% to 30% during those early years if they had longevity insurance in place.

 

Longevity Insurance: What Is It?

Longevity insurance is any type of guaranteed lifetime income feature or rider from an annuity/Insurance company.  The most popular type of "pure" longevity insurance is a (DIA) also called a Deferred Income Annuity.  Qualified Longevity Annuity Contract (QLAC) is also a type of IRA annuity longevity annuity that is designed to provide a guaranteed stream of income during retirement. It conforms with the rules established in 2014 by the Internal Revenue Service (IRS) in the United States as a specialized annuity.

 

How does a Longevity Annuity work?

  • Purchase: A person makes a DIA or QLAC purchase using some of their qualified retirement assets, such as money from a conventional 401(k) or IRA. There are restrictions imposed by the IRS on how much may be allotted to a QLAC. $200,000 purchase limit with income must start before age 85. Deferred Income Annuity (DIA) works the same same as a QLAC but without the IRA restriction.
  • Deferral Period: The main characteristic of a Defered income Annuity (DIA) and the Qualifying Longevity annuity contract (QLAC) is the deferral of the beginning of income payments to a later age, usually no later than age 85 with QLAC only. The money transfered to the longevity annuity continues to increase tax-deferred during the deferral period.
  • Income Start Date: The longevity insurance begins to give a guaranteed stream of income at the selected age, which is normally determined at the time of purchase. Depending on the conditions of the contract, the income payments may be distributed as monthly, quarterly, or yearly installments.
  • Lifetime Income: Once the income payments begin, the longevity insurance provides a guaranteed income for the remainder of the individual's life. This ensures that the they will continue to receive regular payments, regardless of how long they live. Some QLACs may also offer options for a surviving spouse to continue receiving income after the contract holder's death and optional increasing cost of living (COLA) feature.
  • Tax advantages: Individuals may be able to decrease their required minimum distributions (RMDs) during the initial years of retirement by utilizing money from a qualified retirement account to buy a Qualifying Longevity Annuity Contract (QLAC). As a result, their taxable income may be reduced, offering tax benefits.

 

It's vital to remember that QLAC details might change based on the insurance provider and the conditions of the agreement. The features that different QLAC providers could provide—like possibilities for refunds or adjustments for inflation—could have an influence on the benefits and income payments as a whole.

 

Why Would I Need Longevity Insurance?

Anybody who wants to be sure they will have enough money to live on even if they live longer than planned might benefit from purchasing longevity insurance. It can also be utilized to protect yourself from the possibility of outliving your retirement funds. Longevity insurance can serve as a supplement to other sources of retirement income, such as Social Security or pensions and giving you more control over your tax liabilities and helping to manage your retirement savings more effectively.

Longevity insurance offers a fixed income that is unaffected by market changes. This can be especially helpful when there is market volatility or economic turbulence since investment returns may be unexpected. It could make you emotionally steady and insulate you from market volatility to know that you have a steady income stream that is not reliant on market success.

 

Qualifying Longevity Annuity Contract (QLAC):

Treasury department issued on July 2nd 2014 Treasury Regulations defining “Qualifying Longevity Annuity Contract" (QLAC) which allows an exemption to the required minimum distribution (RMD) rules. Key feature of the QLAC or also called longevity insurance which allow income to start in your individual retirement account after age 73 without penalty or RMD.  You can invest $200,000 (originally set at $125,000 in July of as 2014) indexed to inflation of qualified money into the longevity annuity.  The Longevity insurance cannot be invested into annuities of variable or index type and can have a return of deposit death benefit before and after income starts which can not exceed your original deposit. Treasury department is giving you an income-planning key to your guaranteed lifetime income retirement with this QLAC ruling.  Currently there are ten QLAC insurance companies offering this type of QLAC annuity.

 

Flexibility to meet your needs:

Most insurance carriers such as MetLife Guaranteed Income Builder annuity, Mass Mutual RetireEase Choice and New York Life Guaranteed Future Income Annuity allow flexibility options like withdrawals before commencement of income.  You have the option to change the income start date at least one time after the deposit date.  These "new" income start dates and income rates are established at deposit or application time.  This gives you added flexibility in your retirement income planning.   Some longevity annuities have a small death benefit if you die prematurely before and after income starts so you do not lose your principal deposit.  This "Cash Refund" option gives a full return of deposit to your beneficiaries net of any income received from possible income payment to you.   New deferred income annuities also called longevity insurance have optional "Cash Out" features along with cost of living adjustment increases to keep up with inflation.  Optional Inflation COLA (Cost of living adjustments) from 2% -5% and CPI-U index are available.  Longevity insurance is a low cost pure pension product with no annual fees that allows you to defer income as long as 45 years.   Check with our advisors to see which products and riders are available to you before purchase or get a QLAC quote.

 

Pro’s and Con’s for a Longevity Insurance:

Longevity annuities, including Qualified Longevity Annuity Contracts (QLACs), come with both pros and cons. Here's an overview of the advantages and disadvantages:

  • Lifetime Income: Longevity annuities offer a lifetime income stream that is guaranteed, preventing you from outliving your investments. This function provides retirement-related financial stability and peace of mind.

 

  • Protection from Market Volatility: Unlike other investments, longevity annuities are not vulnerable to market changes. You will continue to receive monthly income distributions regardless of how the economy or markets perform, offering security and lessening the impact of market volatility on your retirement assets.

 

  • Tax advantages: You may be able to reduce your taxable income in the early years of retirement by utilizing money from a qualified retirement fund to purchase a QLAC. This is because QLACs can lower your tax obligation by reducing required minimum distributions (RMDs).

 

  • Customization: Flexibility and customization elements are frequently available with longevity annuities. You can select the income start date, spousal continuation, payment frequency, and increasing annual income payments to keep up with inflation.

 

Disadvantages:

 

  • Restricted Liquidity: Your money are normally locked in after you buy a lifelong annuity, making it difficult to have access to the main sum. If you require a lump sum of cash for unanticipated costs or crises, this lack of liquidity may be a drawback.

 

  • Loss of Control: When you buy a longevity annuity, you give the insurance company control of your money. You can no longer invest or manage those assets on your own. The lifetime income guarantee is exchanged for this loss of control over your assets.

 

What is the Cost of Longevity Insurance?

The price of longevity insurance, like a longevity annuity, might differ depending on a number of variables, including the insurance provider, the particular product, your age, gender, health, and the desired level of income. Here are some important things to think about in relation to the price of longevity insurance:

  • Premiums: Longevity insurance typically requires an upfront premium payment in exchange for the guaranteed future income. The amount of the premium will depend on various factors, including the income start date, the length of the deferral period, and the desired income amount.
  • Pricing: Insurance firms use actuarial calculations to establish the price of longevity insurance. These calculations take into consideration variables including life expectancy, interest rates, and the company's projections for future mortality and investment returns. Different insurers may use various pricing systems as a result of these variables.
  • Personal Factors: Your age, gender, and other personal factors can influence the cost of longevity insurance. Generally, the younger you are when you purchase the annuity, the lower the premium may be.
  • Income Amount and Options: The amount of income you desire from the longevity annuity will impact the cost. Higher income amounts will generally result in higher deposits. Additionally, if you choose additional options or features, such as inflation adjustments or spousal continuation benefits, it can affect the cost as well.
  • Annuity Rates: The prevailing interest rates, 10 year treasury bond and market conditions at the time of purchase can influence the cost of longevity insurance. Higher interest rates may result in higher income payments, while lower interest rates may lead to higher deposits for the same income amounts.

 

What age can you get a longevity annuity?

The age at which you can purchase a longevity annuity can vary depending on the specific product and insurance company. However, there are certain age limits and guidelines to consider. The minimum age in most cases to purchase a longevity annuity is typically 18 yrs old. The key is most insurance companies has a 30 years to 40 years max deferral time period to start the income payments.  So if you are 47 years old the max issued income payments would be thirty years or 77 years old to start income. The maximum issue age form most annuities is around 80 years old. It's important to note that the specific age limits and options for longevity annuities may differ among insurance companies. Therefore, it's advisable to shop around and compare offerings from different providers to find a longevity annuity that aligns with your retirement goals and desired income start date.

 

How much income will Longevity annuity pay?

 

• Male, 65, $175,000 deposit, income starts at 80:                                         $4,303 monthly lifetime income.

• Female, 65, $175,000 deposit, income starts at 80:                                     $3,900 monthly lifetime income.

• Joint for spouses, both age 65, $175,000 deposit, income starts at 80:       $3,113 monthly lifetime income.

 

Using our Longevity annuity calculator these 2023 payments aren't usually adjusted for inflation, certain longevity annuities do include a COLA (cost of living adjustment) rider, which comes within a lowest initial monthly income payment. A COLA will increase the amount of premium required to support your preferred starting income payout amount.

 

Why is the payout from a longevity annuity so much more?

Longevity annuities usually start income payments on the thirteenth month or to maximize income around age 80 to age 85.  This later life stage takes advantage of mortality credits of income annuities.  The reason to buy a longevity annuity, also know as longevity insurance, is to receive mortality or longevity credits.  Mortality credits (longevity credits) are the extra premiums collected in the insurance pool by those who pass away sooner than their life expectancy.  They provide higher income payments to survivors than could be achieved through investments.  Mortality/Longevity credits increase with age creating a return that would be impossible to match in the financial markets. The no fee longevity insurance also helps increase the income payments.

 

Longevity credits also known as mortality credits can be explained by a story of the five elderly ladies and their box of money.  The five women, each 90 years old, who agreed to share $500 placed in a box for their benefit. In the second year, one of the 5 women dies, leaving the remaining 4 with $125 for a total of $500, a 25% gain over their original $100 each. In the 3rd year, a second lady dies, increasing the total $167 each for a total of $500 in the box, a 67% return for each of the three survivors. How can they get a return without any stock market or interest appreciation?  Longevity credits is how by benefiting from the pool or box of money of others.  Now you don't have to "lose" all of your money when you die by adding an optional guarantee return of premium on your investment. You also get paid more mortality credits or longevity credits when you place fewer guarantees on the contract, such as a cash refund guaranteed death benefit.

 

Longevity Insurance as Long-Term Care Insurance:

Longevity Insurance is taking a one time deposit and guaranteeing lifetime income later in life.  Structured correctly this later in life income can be timed for the future health care expenses also called long-term care.  Most longevity insurance, also called QLAC when using IRA deposited dollars, have a flexible income start date.  This flexible income start date has a 10 year income range from the set initial start date of the longevity annuity/insurance. The 10 year income range is locked in from the initial purchase so your long term health care needs can be planned for.  This annual income could be turned on sooner by 5 years at a slightly lower income rate or pushed back by 5 years at a higher income rate.  Remember there is NO health questions when applying so this might be a viable alternative to traditional long-term care insurance.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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