We mentioned previously that a longevity annuity is for those who are of age eighty and beyond. Not everyone will find to be a desirable investment or even appropriate. As you become older, unfortunately it becomes obvious to you the remaining length of your life, not considering accidents or unexpected events.
If you have considered this and feel like this is a good idea for you, then you have come to the right place to learn about the longevity annuities pros and cons. Let’s start with the advantages.
Longevity Annuity Advantages
Think of the longevity annuity as a health policy but with a much larger deductible than normal. You are depositing a sum of money in the present so that you can earn interest on it and receive payments if, and that is the key word, you live beyond the age of eighty years old.
You are taking out an insurance policy against what could be a very disruptive and burdensome event, which is running out of money in retirement. If you are alone and have no family to help support you, or were unable to become ridiculously wealthy, then this is a realistic risk you could encounter, especially as your advances in diet and medicine continue to expand the lengths of our lives.
It has been suggested that anywhere from ten to fifteen percent invested now and not withdrawn until eighty years old, in a longevity annuity, will equal the same spending value in the future as if you put fifty percent of your savings into an immediate annuity. Of course, there is the risk of losing your money altogether if you were to perish earlier than that, but then again, you can’t take it with you. However, if you have a spouse or children, you’d prefer for them to receive the money, obviously.
Longevity Annuity Disadvantages
The real disadvantage is two fold. The first and most obvious negative to this is that if you are to die before you can withdraw your longevity annuity, you will lose that money to the insurance company. It will not be available to your family or beneficiaries. It is gone.
The second less thought of disadvantage is that you may deposit this money at say, age sixty, and find that you need it before the age of eighty. You will pay a penalty to get it back, and will likely lose money.
So make sure that you think you will outlive the quantity of your retirement savings and cannot adjust your spending to accommodate it before you buy into a longevity annuity. If your family has a history of living long lives, then definitely consider it.