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We're all living longer. With luck, many of us can expect to live to a very ripe old age. Are you prepared, however, for the financial implications of that possibility?
Once upon a time...
Until recently, many retirees could count on a healthy Social Security system and generous employer pension plans (often including retiree health coverage) to cover most of their needs in old age. But times have changed. Today, individuals contemplating retirement realize that its financial cost will fall largely on their own shoulders. Yet, despite this, many of us aren't doing enough. Even those of us who do set aside funds may not set aside enough to cover our needs into very old age. The fact is there's a very real possibility that many of us will outlive our retirement funds.
The knight in shining armor
While annuities have long offered "income for life" as an annuitization option, they often come with features (such as death benefits and/or the ability to make withdrawals) that ultimately either increase costs and/or reduce the amount of monthly income available to you. Enter longevity insurance.
Buy now, get paid later
Longevity insurance is most often purchased with a lump-sum payment at or just prior to the time you retire. Typically, the earliest age at which you may purchase a policy is 55; the latest, 79. The insurance offers you a guaranteed monthly income for life, beginning much later in life, in your very old age. (The guarantee is subject only to the claims-paying ability of the issuer.)
The silver lining
Knowing that you'll have a certain amount of guaranteed monthly income once you reach a very old age can be a comfort to you as you approach that age. The certainty of this income allows you the flexibility to spend down or invest your other retirement savings more aggressively, or to leave a portion of those savings as a legacy. In addition, you may rest assured that, once you begin to receive it, your income will not fluctuate with financial market changes.
Did you know?
- 68% of pre-retirees have no financial retirement .
- 34% of 65-year-old men, and 49% of 65-year-old women, will live to be age 85 or older.
Society of Actuaries, Risk and Process of Retirement Survey, 2005
The cloud
Unlike the options available with most annuities, pure longevity insurance usually doesn't offer a death benefit; if you die before you begin receiving income from the policy, the payment you made to buy the policy remains with the issuer, and your heirs won't receive anything. Moreover, pure longevity insurance doesn't offer a withdrawal option. And your payout option is limited to fixed payments to you alone (and, in some cases, to you and then to a surviving spouse). Finally, since the payments you receive in the future will be fixed, their purchasing power can be whittled away by inflation over time--even before you begin receiving them.
If you consider purchasing longevity insurance, remember:
- Don't buy it if your health is poor; you should be reasonably certain you will live well into your 80s.
- You may save on the premium by buying sooner rather than later.
- If interest rates are rising, consider postponing your purchase until you can obtain a higher contractual rate
Your next step
Before purchasing this type of insurance, you should have a financial plan done that shows how some of your assets placed in an annuity insurance product will or will not make your entire retirement plan safer. As with all plans, we suggest regular monitoring and ongoing review of any plans that you make.
Your Stage 2 Advisor would be more than happy to discuss how annuity insurance plans might fit into your long-range plans. Please give us a call and we will be glad to explain these options to you.
If you would like more information on our firm, please visit us online or e-mail us and a Stage 2 Associate will get back to you.
With Warm Regards,
Stage 2 Planning Partners
Josh Patrick © 2006
Securities and Investment Advisory Services offered through NFP Securities, Inc., A Broker/Dealer, Member NASD/SIPC and a Federally Registered Investment Advisor.
Stage 2 Planning Partners is an affiliate of National Financial Partners Corp., The parent company of NFP Securities, Inc. Representatives listed on this website are currently registered to conduct securities business in the following states: AZ, CO, CT, FL, IL, IN, MA, MT, NC, NH, NY, PA, RI, VA, VT, WA
NFP Securities is not affiliated with Harris- Murray
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