While life annuities are one of the most effective forms of financial protection in the event of a long life, the income an annuity provides can increase dramatically per amount invested if a client waits until an advanced age to purchase one.<\/p>\n
In fact, some people now are waiting until they’re in their 70s or 80s to buy an annuity. The older the client, the less risk to the insurance company that it will be required to pay out an income to the client for decades and the healthier the income the insurer is willing to pay for the unknown number of years that the client may live.<\/p>\n
For clients who live into their 90s, an annuity provides the comfort of guaranteed income that does not fluctuate with changes in financial markets and will not deplete, no matter how many years go by.<\/p>\n
“Annuities don’t make financial sense if bought by the young, or by anybody under the age of 65,” says Moshe Milevsky, associate professor of finance at York University’s Schulich School of Business in Toronto. “But if I find myself in perfect health at the age of 92, I’m going to annuitize myself.”<\/p>\n
Annuities come with a variety of features, but the timing of the purchase can have a dramatic effect on the benefits. For example, figures from Toronto-based Sun Life Assurance Co. of Canada<\/em> show that a male, age 65, who purchases a $200,000 tax-efficient, prescribed lifetime annuity with no guarantee period (income payments stop when the client dies, even if only a few months after buying the annuity) and using non-registered funds, would receive $1,157.48 a month (almost $14,000 a year); when the annuity is purchased at age 75, that monthly benefit climbs to $1,580.38 (almost $19,000 a year) for an annual difference of $5,000. However, if the client waits until age 85, the benefit jumps to $2,403.53 ($28,845 annually), which is almost $15,000 a year in extra income and more than double the income the 65-year-old would receive.<\/p>\n In the U.S., a relatively new annuity product is garnering interest. It is called a “deferred income annuity” or a “guaranteed future income annuity,” popularly known as “longevity insurance.” Whereas an ordinary annuity starts issuing payments immediately, the deferred variety requires policyholders to pick a future date to start receiving income. A 65-year-old, for example, could purchase an annuity today that does not begin paying out until age 85. The income at 85 would depend upon a variety of factors, including interest rates and the time until income payout begins, but it would be a higher payout due to the fact that the insurance company has been able to invest the money for 20 years.<\/p>\n This type of product accounts for more than 30% of overall income annuity sales for New York Life Insurance Co., the biggest seller of plain-vanilla income annuities in the U.S., and Milevsky expects that the product soon may become popular in Canada. One of the unknowns is the level of interest rates in 20 years, and how much competing annuities will be paying at the time.<\/p>\n Heather Freed, an independent insurance and employee benefit specialist in Toronto, points out that if the annuity is set to start paying out at a future date, the invested funds build up tax-free within the account. If the client dies before the first payment in a deferred annuity, Freed says, depending upon the terms of the annuity, a designated beneficiary may receive at least the original capital.<\/p>\n For clients in their senior years, a portion of their assets invested in an annuity provides the security of steady income without requiring the client to spend time and energy managing and monitoring the investment. Furthermore, the annuity is inaccessible to any unscrupulous businesspeople or greedy relatives who might try to get their hands on the client’s assets.<\/p>\n \u00a9 2014 Investment Executive. All rights reserved.<\/p>\n","protected":false},"excerpt":{"rendered":" Clients worried about outliving their money can receive steady income, but these products are not all the same – some comparison shopping is recommended. And patience is key: The older the client, the bigger the payout<\/p>\n","protected":false},"author":38954,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[4829,5007,3013,3018],"tags":[2346],"yst_prominent_words":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/324571"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/38954"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=324571"}],"version-history":[{"count":1,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/324571\/revisions"}],"predecessor-version":[{"id":362615,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/324571\/revisions\/362615"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=324571"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=324571"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=324571"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=324571"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}