The promise of longevity annuities

However, it’s not clear if DIA buyers using the products primarily as longevity annuities. The authors report that 44 percent of buyers from one major provider during the period of July 2013 to August 2014 were age 59 or younger. Additionally, they note: “…approximately two-thirds of the annuities sold had deferral periods of five years or less, with only one percent having deferral periods in excess of 15 years. The young purchasing age, coupled with the short deferral period, suggests that few annuitants are using deferred-income annuities to protect against longevity risk.”

The new Treasury regulations on qualifying longevity annuities (QLACs) could help spur longevity annuities’ adoption for longer periods, Abraham points out in an email response. Several insurance companies that weren’t in the market have told her they have started to develop longevity annuities. Getting consumers to adopt the products will require changes, however. “In order for these products to really take off, though, it’s also going to be important to make changes to reassure employers that they aren’t taking on undue risk by offering a longevity annuity option in their retirement plans,” she writes. “The other thing that will be important is helping people who are nearing retirement understand that there is a good chance they will live longer than they expect and that products like these can be a cost-effective way to ensure a continuing stream of income if that happens.”

Retirement advisors also can influence adoption by clients, although how advisors present the products will be important. “One thing I sometimes hear is that, if a person buys a longevity annuity and doesn’t live long enough to collect, the money will have been wasted,” she says. “That’s not really the right way to think about these products.  What they are offering is insurance against outliving your assets.  Even if the holder of a longevity annuity never collects a dollar, they will have enjoyed the peace of mind of knowing they had that insurance in place, and if they do collect benefits, those benefits will be higher because their cost is partly underwritten by the premiums from people who did not live long enough to need them.”