Longevity Insurance
According to the National Center for Health Statistics a man living in the United States who reaches age 65 has a life expectancy of another 17 years and a woman who reaches sixty five has a life expectancy of 20 years. In fact according to Wikipedia 1 in 50 women and 1 in 200 men living in the United States will attain the ripe young age of 100.
Statistically, life expectancy is the point where 1/2 of a group will be dead and of course the other half will continue living. So half of the women living in the US that are 65 will live to be older than 85, and half of the men will live to be older than 82.
That is a long way to get to where I wanted to start. With expanding longevity in the US, making sure your money lasts longer than you do becomes increasingly harder. Defined benefit pensions are going the way of the dinosaur so individuals have to shoulder an increasing risk of longevity (which I believe is a good problem to have as far as problems go).
Enter your friends from the insurance industry who are willing to sell you longevity insurance.
Some think the policies are over priced but I believe it is an option that some should consider. here's how it works:
Let's say a 65 year old male needs $50,000 a year of income in addition to his social security benefits. Guessing that inflation will average about 3% annually this gentleman will need just over $90,000 to buy the same amount of groceries when he reaches age 85. For about $131,000 he can buy a longevity insurance policy that will guarantee him $90,000 a year in income beginning at age 85. Doesn't sound like too bad of a deal so far, but remember less than half of the men age 65 today are expected to live long enough to collect even one cent (that's right if you die before age 85 you get nothing and the insurance company keeps all the money).
Still if you are one of the lucky ones who lives long enough to collect you'll be ahead after about a year and a half.
If you have reason to believe you'll live a long time this could be a good deal. If like Mickey Mantle you feel "If I had known I was going to live this long I would have taken better care of myself" then maybe it's not for you.
Statistically, life expectancy is the point where 1/2 of a group will be dead and of course the other half will continue living. So half of the women living in the US that are 65 will live to be older than 85, and half of the men will live to be older than 82.
That is a long way to get to where I wanted to start. With expanding longevity in the US, making sure your money lasts longer than you do becomes increasingly harder. Defined benefit pensions are going the way of the dinosaur so individuals have to shoulder an increasing risk of longevity (which I believe is a good problem to have as far as problems go).
Enter your friends from the insurance industry who are willing to sell you longevity insurance.
Some think the policies are over priced but I believe it is an option that some should consider. here's how it works:
Let's say a 65 year old male needs $50,000 a year of income in addition to his social security benefits. Guessing that inflation will average about 3% annually this gentleman will need just over $90,000 to buy the same amount of groceries when he reaches age 85. For about $131,000 he can buy a longevity insurance policy that will guarantee him $90,000 a year in income beginning at age 85. Doesn't sound like too bad of a deal so far, but remember less than half of the men age 65 today are expected to live long enough to collect even one cent (that's right if you die before age 85 you get nothing and the insurance company keeps all the money).
Still if you are one of the lucky ones who lives long enough to collect you'll be ahead after about a year and a half.
If you have reason to believe you'll live a long time this could be a good deal. If like Mickey Mantle you feel "If I had known I was going to live this long I would have taken better care of myself" then maybe it's not for you.
Labels: insurance, investments, retirement
posted by Joe Taylor at 1:00 PM
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