Retirees face a difficult decision: Should they self-insure their retirement income and attempt to develop an asset- and income management plan that they hope they won’t outlive? Or should they insure against longevity risk and accept the trade-offs that go with that approach?
A study from the Brookings Institute, “Better Financial Security in Retirement? Realizing the Promise of Longevity Annuities,” considers these issues in-depth. Authors Katharine G. Abraham and Benjamin H. Harris discuss how the retirement savings system in the U.S. has changed in the past 25 years. Defined benefit participation is lower and defined contribution participation, often as the sole savings plan for employees, is higher. The widely recognized result: employees are shouldering much more of the risk associated with managing retirement savings to ensure lifetime income.
Longevity annuities could be part of the lifetime income solution, the authors note, and they are gaining greater acceptance. LIMRA Secure Retirement Institute reported that sales of deferred income annuities (DIAs) were up 35 percent from 2013 to $2.0 billion for the first nine months of 2014.