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You have saved from every paycheck while working and now have your retirement nestegg. That nestegg must provide income each and every year of your retirement. But where to look? Invest into the stock market with its ups and downs and hope for the best? Run to the bank and get a low yield on your money?
Turn some of your retirement savings into a guaranteed lifetime income. Longevity insurance or longevity annuities, also called 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 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.
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 70 ½ without penalty or RMD. You can invest $130,000 (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.
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.
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. Example, a small $75,000 one time deposit into longevity annuity for a 60 years old Male with the income start date in 20 years would give the annuity holder over $30,000 per year. This $30,000 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.