Recognizing that many retirees are uncomfortable with such restrictions, however, the companies that sell longevity policies are introducing more flexibility.
Flexibility, for a price
MetLife, for example, now offers a flexible access version of its Income Guarantee product, which lets clients start collecting income whenever they need it, provides a death benefit (allowing heirs to collect a portion of what you paid if you die before the payout begins), and a liquidity option to access those funds early if needed.
The payout, however, is less.
For example, a 65-year-old male who purchases the flexible access version with $100,000, would receive monthly income payments of $3,000 for life beginning at age 85, according to MetLife. The amount of the death benefit would depend on date of death.
If he purchased the maximum income policy with $100,000, which does not include a death benefit, his monthly income payments would be $5,500 for life beginning at 85.
Stewart says the death benefit is worth the reduced income, however.
"One of the things we advise our clients is that they explore their payout options and go with something that at least gives something back to their heirs if they die before the benefit kicks in," he says. "The fact that you don't get anything back if you don't live that long is a huge downside risk."
For its part, The Hartford Income Annuity allows clients to purchase guaranteed fixed income that either starts immediately or delays their income start date until they need it. One of its products offers optional survivor benefits for a fee.
Similarly, while New York Life Insurance Co. does not offer longevity insurance per se, it did recently introduce an elective feature to its immediate Lifetime Income Annuity, that offers a form of late-in-life financial protection. Called the "changing needs" rider, policyholders would begin collecting income immediately, but they can elect to increase or decrease future payments by up to five times the original amount at a date of their choosing. This allows them to plan for a gradual retirement or an increase in health-related expenses, for example.
This fall, the company also intends to introduce a deferred income annuity product that provides more traditional longevity insurance.
Are they right for you?
Longevity insurance, though, does not make sense for everyone.
Those with ample assets would be better served with more traditional investment securities, such as stocks, bonds and mutual funds, rather than tying up a percentage of their assets in life insurance, says Tomlinson.
"If you don't have any danger of running out of money, then you don't have to waste your time and money chasing guarantees," he says.
It does not make sense for those with a life threatening illness, either.
But those with a family history of living into their 90s are good candidates, says Tomlinson.
"If you happen to be someone who believes in the stock market long term, longevity insurance might be a more appropriate product than an immediate annuity," says Tomlinson. "I think these are good for somebody who wants to control most of their investments, but have some protection against the risk of living too long."
Retirees who regularly withdraw more than the target percentage from their retirement portfolio each year should also consider purchasing a longevity contract, says Stewart, since they're at greater risk of depleting their funds.
He recommends spending no more than 10 percent to 15 percent of one's total portfolio on longevity insurance, due to the opportunity cost of not having those dollars invested in securities with potentially higher returns.
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