Longevity risk is getting a lot of attention these days, particularly with many of us living in the ‘sandwich generation’ – taking care of both elderly parents as well as grown children who’ve moved back in with their parents. As someone experiencing this first hand, I can tell you it’s an expensive proposition – particularly taking care of aging parents.
Now, a few companies are stepping up with insurance products to address longevity concerns… longevity insurance. It’s called ‘longevity insurance’ because it’s basically protecting you if you live longer by allowing you to make a payment now for a large flow of income in your later years.
One company offers a “deferred income annuity”. From what I’ve read, it apparently now accounts for 35% of their overall income annuity sales from their agents. A recent Wall Street Journal article on this product points out that, like an immediate income annuity, a longevity policy allows purchasers to convert a lump sum into a pension-like stream of income for life.
Other companies offer variations of this product, and each insurer has its own guidelines. It’s important to compare because start dates can vary widely.
There’s one thing you shouldn’t forget, however: Inflation.
We’re all living longer and inflation is sneaky. You may not think you or your spouse will live in retirement for 30 years, but what if you’re wrong? Odds are one, or both of, you will! Remember, the cost of a postage stamp, a convenient government barometer, was 20-cents in 1983. So, what may sound like a good income today may not be so good in future years. My dad retired in 1974. What was a considered a good income back then wasn’t so hot during his last decade 1995-2005. While he did fine, that wasn’t true of many of his contemporaries.
The key: You have to do the math. You have to have a plan. And, you should start early.
It’s about time.
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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.
The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.