Good news on the regulatory front. Seriously.
For those of you who didn’t spend all summer sitting on the beach sipping fruity umbrella drinks, you’ve no doubt heard about what happened with longevity annuities. For those who didn’t, here’s the rundown.
The products, which act as “extreme” deferred annuities, are meant to safeguard against outliving one’s assets. Contracts are structured in a way so distributions begin at an advanced age, usually 80 or 85, and pay a specified amount for the remainder of the annuitant’s life. The investment grows in the account until distributions begin.
If a client purchases a longevity annuity in their 60s, the company then has 15 or 20 years to play with that money. Yes, we’re all living longer, but mortality tables still favor carriers, and there’s a good chance the client might die before distributions begin. At that point, heirs receive nothing, and the investment is forfeited. For all of these reasons, it’s a great deal for the company. Therefore, if the client does in fact live long enough to receive benefits, they end up being pretty generous.
For example, in 2009MetLife said a 60-year-old male who spent $50,000 on a longevity annuity would have a guaranteed annual payment of more than $56,000 a year when he turned 85. For a 60-year-old woman, the same payment would yield a lifetime annual guarantee of about $44,500. The amount is lower because women typically live longer than men.