What Is a Longevity Annuity?
With life expectancy rates increasing, you could outlive your money, especially if you have a history of longevity in your family or are now nearing retirement age. Adding a longevity annuity to your retirement planning can help, should you deplete your savings or retirement accounts.
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Features
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Sometimes referred to as a "deferred annuity," a longevity annuity provides a guaranteed, regular amount of monthly income to you late in life. Longevity annuities are usually purchased around age 65 and do not begin to pay out until five to 20 years later, unlike an immediate annuity. Typically, payouts from a longevity annuity do not begin until well into retirement, around age 80, and continue for the rest of your life.
Benefits
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A longevity annuity allows you to invest a smaller portion of your retirement savings. Putting 10 to 15 percent of your savings into a longevity annuity can provide a return equal to that of an immediate annuity bought with 50 to 60 percent of your retirement funds. The longer you defer the payout, the more you will receive each month as the account grows over time. Further, investing a smaller amount may help open up other funds in your retirement portfolio to other investment opportunities.
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Disadvantages
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The major disadvantage to a longevity annuity is that if you should die before payout begins, the insurance company issuing your longevity annuity retains your entire account balance. Like many retirement accounts, during the deferral period of your longevity annuity, you have little to no access to the funds in your account.
Beneficiaries
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When you open up a longevity annuity with a guaranteed number of payments, your beneficiaries will continue to receive your regular payments if you die after payout has begun and the account is open.
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References
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