If you think I hate all annuities, that’s not exactly correct. There are 2 kinds of annuities I love, but that you’ll almost never hear anyone discuss: Life or immediate annuities and longevity annuities.
Why I like immediate annuities
When you retire, you may not have enough money to provide for your monthly needs from savings. So there are companies that turn a supply of money — you typically need a minimum of $100,000 — into a lifetime stream of income. Immediate payout annuities are entirely legitimate, but they have so little in the way of commissions that they’re never pushed by salespeople.
One knock that I often hear is, what if you pour all your money into an immediate payout annuity and then you die next week? It’s true that all the money will be gone and there will be none for your heirs.
Opt for a special provision called ‘period certain,’ which means that you’ll get a guaranteed payout (typically for 20 years) even in the event of your death.
Your monthly benefit will drop by about 10 percent if you take the period certain option, but at least it provides something guaranteed to your heirs.
Why I like longevity insurance
Longevity insurance is a simple insurance product you buy that doesn’t start paying a living benefit until you hit 85!
The idea is that with a longevity policy in place, you could plan to blow through all the cash in your retirement plan through age 84. Because the minute you turn 85, you get a check every month for as long as you live.
Insurers offer a great benefit on longevity policies. Why? Because they know from actuarial tables that most people who buy the policy won’t live to receive any money. But if you do live to age 85, you get that nice monthly check.
You won’t hear a lot of insurance agents talk about longevity policies because the commissions on them are so small. But they can be a great idea for so many situations where people might otherwise outlive their money.
If you want to explore the idea of buying a policy, ask the agent for ‘the insurance policy that doesn’t pay any money until age 85.’ They’ll know what you mean; different people call it a different thing, but they’ll know what you mean based on that description.