Longevity annuities can provide lower-cost alternatives to fixed income annuities while also appealing to some public retirement plan sponsors who might want to cut their longevity risk exposure.
That’s the word in a study from the National Institute on Retirement Security (NIRS), which examined the potential that longevity annuities offer in providing a secure retirement to public employees.
Although defined benefit plans are both more cost-efficient and provide significant consumer protections while focusing on retirement income, the study said, the shift to defined contribution plans has exposed workers to longevity risk — the risk that their retirement savings may not be enough to last throughout retirement — and to adequacy risk — that their savings are not enough to meet their financial needs.
In addition, other risks — investment risk, in which retirement assets don’t earn enough, or actually lose value, and inflation risk, in which higher prices will outpace what retirement income can buy — also threaten their ability to retire financially confident.
While public-sector DB plans have been able to handle these risks successfully, said the study, “[p]ublic retirement systems regularly review their investment, economic, and demographic assumptions and trends to assess how these trends impact funding and retirement readiness.”