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Life expectancy is rising in the United States — and it poses greater financial risk for retirees who have to maintain their nest eggs longer.
According to the Centers for Disease Control and Prevention, today’s average age of 65 lives for the next 20 years, about 6 years longer than in 1950.
Older people can take steps to reduce this “longevity risk,” such as working longer hours and delaying Social Security.
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According to retirement experts, they also have free use type pension, Longevity Pension. This is one of the best financial transactions for senior citizens who are worried that their money will not last long. However, until now it has rarely been used.
“It’s a state of longevity,” said Wade Pfau, a professor of retirement income at the American College of Financial Services. “If you live long enough, you’ll get the most value for your money this way.”
how do they work
Longevity pension is a form of old age insurance. There are several types, but such a pension is a form of a “deferred income pension”.
The basic assumptions are as follows: Retirees today pay large sums of money to insurance companies and start receiving monthly payments years later. Usually between the ages of 75 and 85.
Like any pension, its income flow is guaranteed to last for the rest of your life.
However, deferred payments have their advantages. Insurance companies pay more per month than other pensions that start early in life. (Pathologically, this is because buyers are more likely to die before income begins, which opens up a pot of money for the few remaining.)
This is a rough example. Use the quote for a 65-year-old living in New York who bought a plain pension for a lump sum payment of $100,000. If this person starts receiving immediate payments, he or she will receive about $500 per month ($6,000 per year) for a lifetime. That same buyer would get about $2,800 per month ($33,600 per year) by waiting 20 years to start paying.
According to retirement experts, that level of income helps allay worries of running out of investments and other savings.
David Blanchett, head of retirement research at PGIM, Prudential’s investment management division, said: “The idea is to create a more limited horizon than planned.
“When you live to that age, you will be taken care of.”
Some types (qualified longevity pension contracts, or QLACs) may also reduce the minimum required distributions for retirees from individual severance accounts and 401(k) plans.
Consumers can purchase a QLAC using $135,000 or 25% of retirement funds (whichever is less). Those who have $500,000 in retirement savings will calculate required distributions at $365,000 instead of the full amount of $500,000.
However, despite its benefits, these pensions are not popular among older people.
Deferred income pensions accounted for $1.7 billion (0.7%) of total pension revenue of $219 billion in 2020, according to insurance industry group LIMRA. (Since longevity pensions are a subset of deferred income pensions, their share is even smaller. LIMRA does not split this data.)
By comparison, variable annuities had about $99 billion in sales last year.
According to Blanchett, the disagreement is mainly due to the psychological barrier of giving away large amounts of money that would not be profitable if they did not survive for about 20 years.
And they’re not for everyone — retirees who want to maintain control and flexibility over their money may find it difficult to hand over cash to an insurance company. They may prefer to invest the money instead.
“”[Longevity annuities] Financially, this is potentially the most efficient pension,” said Branchett.
Perhaps the easiest way to integrate a long-life pension into a financial plan is to assess the desired level of guaranteed future monthly income, and use the pension, after considering other sources of income such as Social Security and pensions. Do it at intervals Has to be filled.
(For example, a retiree who needs $50,000 a year to live comfortably at age 85 and has already received $30,000 a year from Social Security would need to generate $20,000 a year from his pension.) Decides on the lump sum amount required to get an insurance quote.)
However, according to Tamiko Toland, director of retirement markets at CANNEX, which provides pension data, this is a tighter financial planning proposition than other pensions. That’s because it’s hard to judge how much money you need to live in 20 years. This becomes even more difficult when trying to assess how inflation will affect the cost of living in the future.
According to experts, the credit rating of insurance companies is also very important. In general, the higher the financial rating, the more likely the company will pay out in the future.
According to Blanchett, it’s wise to get quotes from multiple insurance companies, and maybe even accept slightly lower payments from higher-rated companies.
According to experts, consumers can make it more palatable by buying a long life pension with certain features, but the monthly income for those facilities is enough.
For example, consumers can purchase them using refund options. If the buyer dies before the income starts, the beneficiary will receive a return of the premium. If the buyer dies after the income has started, the beneficiary will receive the payment less premiums.
Source Link Longevity Pension is good for the elderly. But many people don’t buy them