Filed Under:Markets, Senior Market

Planning for a Long Life: Longevity Insurance and Deferred Annuities

Photo credit: worradmu
Photo credit: worradmu

The Treasury Department recently proposed rules that would encourage individuals approaching retirement to use a new type of planning tool–longevity insurance–to fund increasingly longer retirements. These proposed rules recognize that traditional products are insufficient when your clients are living well into their 80s and 90s, and offer tax incentives to motivate the workforce to defer a portion of their savings until they reach old age.

Using longevity insurance, a type of annuity that defers payouts for an extended period (e.g., 20 years), allows retirees to bypass the typical minimum distribution requirements in certain circumstances. By offering this benefit, the government is recognizing that the days of relying solely on pensions and traditional 401(k)s to fund retirement are over, and that it’s time for retirees to begin planning to enjoy significantly longer lives.

Limitations on Longevity Insurance

Despite the benefits of planning through longevity insurance, this type of planning is not for everyone. Many clients may be wary of an arrangement in which they give up control of a portion of their retirement savings–once the funds are invested in the annuity, your client loses access until payouts begin. There is, after all, no guarantee that they will live long enough to need income this late in life.

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Nichole Morford

Nichole Morford
Managing Editor

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