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A Key to Spending without Worry in Retirement: Longevity Insurance

This special type of annuity kicks in with a reliable income stream beginning at age 80 or 85 – meaning your savings only need to get you that far, not indefinitely. That could ease your mind about spending more freely in early retirement.

July 19, 2021

More people are living into their late 80s, 90s and even past 100. But longevity isn’t so great if you run out of money.

To avoid that risk, you can buy longevity insurance. It’s a special kind of deferred annuity that assures you’ll have a guaranteed income forever, even if you live to 100 or beyond.

8 Surprising Ways to Prosper From Annuities
The longevity annuity hedges against the financial risk of living a very long life. You can think of it as the opposite of life insurance.

Independent experts say it’s worth considering. Writing in the Financial Analysts Journal, Jason Scott of Financial Engines asserted, “For a typical retiree, allocating 10-15 percent of wealth to a longevity annuity creates spending benefits comparable to an allocation to an immediate annuity of 60 percent or more.”

The longevity annuity — also called a deferred income annuity — combines tax-deferral with a future stream of income. Instead of paying anything immediately, it defers payments until a future date that you choose. Most buyers choose to start taking payments when they turn 80 or older.

You’ll know the exact amount of monthly lifetime income you’ll receive and the exact date when it begins. You can buy either a single-life annuity or a joint-life annuity, which typically covers both spouses. It’s the most efficient way to protect against outliving your assets in very old age.

The power of the approach results from two things. First, the insurer invests your money for many years, enabling it to compound until you begin receiving income. Second, buyers who do not live to an advanced old age in effect subsidize those who do.

The longer you delay taking payments and the more advanced age you start taking them, the greater the monthly payout.

The longevity annuity offers a different way to plan for retirement. Suppose you’ll retire at 65. You can use part of your money to buy a longevity annuity that will provide substantial lifetime income starting at 85, for example. Then, with the balance of your retirement money, you only need to create an income plan that gets you from 65 to 85, instead of indefinitely.

You don’t have to deal with the uncertainty of trying to make your money last for your entire lifetime. Also, since you know you’ll have assured lifetime income later on, you can feel less constrained about spending money in the early years of your retirement.

You can buy a longevity annuity with taxable savings or within an IRA. The latter is called a qualified longevity annuity contract. A QLAC is a type of longevity annuity designed to meet specific IRS requirements. When held within an IRA, there’s a $135,000 lifetime limit on deposits.

The annuity can be purchased with a lump sum or a series of deposits. The issuing insurance company guarantees a lifetime income to begin at whatever age you choose, starting no later than 85.

If you’re married, you and your spouse can each buy individual longevity annuities. Or you can purchase a joint payout version, where payments are guaranteed as long as either spouse is living.

What happens if you die before you start receiving payments or only after a few years, when the total amount of payments received is less than the original deposit? To deal with that risk, most insurers offer a return-of-premium option that guarantees your beneficiaries will receive the original deposit premium.

This is a popular option, but it does reduce the payout amount slightly when compared to the payout amount without the return-of-premium guarantee. It comes down to personal preference. If you don’t have a spouse or anyone else you want to leave money to, you won’t need this option.

How much income will it pay?
Here are three scenarios as of July 2021 for non-qualified longevity annuities, meaning ones not in an IRA (so they are not subject to the $135,000 limit):

Male buyer, 65, $150,000 deposit, income starts at 80, with return-of-premium guarantee: $2,110.60 monthly lifetime income.

Female buyer, 65, $150,000 deposit, income starts at 85, with return-of-premium guarantee: $3,124.98 monthly lifetime income.

Joint for spouses, both age 70, $150,000 deposit, income starts at 83, no return-of-premium: $1,822.00 monthly lifetime income.
While these payments typically won’t adjust for inflation, some longevity annuities offer the option of a COLA (cost of living adjustment) rider, but there’s a cost. A COLA will either significantly impact the amount of premium required to fund your desired initial income payment amount or it will significantly lower the income payment amount with the same premium deposit amount.

The main drawback of longevity annuities is that they have no cash value. You give up control over your money in return for a contract providing lifetime income. And if you don’t opt for the return-of-premium feature, your premium payment will be lost if you pass away unexpectedly before you have received your deposit back. Choosing this option will reduce your guaranteed income payments somewhat, but if you die before your monthly income payments equal the full amount of your annuity purchase price, your named beneficiary will receive the difference.

Forget 60/40 portfolio with bonds.

Use Annuities that will destroy bonds returns without downside risk.

if you want to take on risk preferred stocks or higher yield stocks can replace bonds but still have 50% downside risk. Annuities decrease volatility and improve standard deviations. Interest rates are near zero, annuities are not-great bond and cd alternative with 3 year returns guaranteed at 2.4% for example, why get 1% on your CD? Hedging with annuities is my preferred alternative investment. Longevity risk if approaching retirement age! Sequence of returns risk. At age 65 55% in stocks you can live 20 to 30 more years, 80% at age 50 for me is too much in the video. Annuities have decent upside risk without any, zero downside risk. Stocks are overvalued and it means your taking way more risk now, beyond diversification is rotating bond money into annuities. See Dr. Moeshe Milevsky and Dr. Wade Pfau. Only annuities can guarantee against longevity risk. 60/40 portfolio has volatility. Capital Markets have changed. Interest rates are 50% down vs beginning of the year, so more risk for same return. Target date strategies 15 years from retirement needs more in stocks or equivalents with reasonable rates of returns. Different people have different goals. Lower expected stock market returns now into the future. 60/60 5-20% volatility depending on markets. Interest rates stink. Joe Biden is not going to push business like Trump he wants to go to heavan as a supposed Catholic and wants his God points for redistribution of wealth. Markets will be effected-watch out. Annuities that I use have zero downside risk and beat CD/s, bonds and sometimes even stocks over long periods of time, so why take that market risk if you dont have too? Preserve your wealth in retirement don't take a chance of losing 50% or more right before you need a legacy or immediate montly income to match your social security payments. Also, the rule of 4% is more like the rule of 1.3 to 2.3% depending on if your join account or not. Call me 9173863057 Cliff

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How to Choose the Right IRA to Roll Over Your Old 401(k)
Nicolle Willson, J.D., CFP®, C(k)P®
20.Nov.2019

If you have a 401(k)—or similar type of retirement account—with a former employer, you might not know what to do with it. You have a few options - a popular choice for many people is to roll over their old 401(k) account to an IRA.

Most IRAs are easier to set up than you think; they are often free to set up and transfer.

But, all IRAs aren’t the same. In this article, we’ll cover what you should look for and how to compare providers so that you’re prepared to find the best IRA for you.

What are the benefits of rolling over your old retirement account to an IRA?

There are many perks to choosing a rollover IRA. Here are just a few:

Keeping the same tax-deferred asset growth: Like 401(k) plans, IRAs allow your savings to grow tax-deferred.
More investment choices: Many IRA providers offer more investment options than a typical 401(k) plan.
Potentially cheaper investment fees: Many IRAs have lower investment fees, though this comparison entirely depends on your former employer’s 401(k) plan. It’s worth reviewing the fees side-by-side if you’re considering leaving your 401(k) savings with your previous employer’s provider.
No account fees: Most IRAs don’t charge any account management fees (though you can hire a financial advisor who will), whereas many 401(k) providers pass these fees on to employees—not the employers.
Consolidating multiple retirement accounts into one place: If you have worked for multiple employers, you may have 401(k) accounts administered by different providers. Rolling them over into a single IRA can be an easier way to manage and track your savings.

There are also a few cons to consider, however. For example, while many 401(k) plans offer loans, you can’t take a loan from an IRA (though you can generally distribute your money at any time, albeit with a potential tax penalty). Also, you are required to take minimum distributions from your traditional IRA beginning the year you reach age 70 ½. On the other hand, you might be able to defer required minimum distributions (RMDs) for your 401(k) past age 70 ½ if you haven’t yet retired.

For a more comprehensive overview, here’s a side-by-side comparison of what to do with funds from an old 401(k)—whether that’s opening a rollover IRA, keeping them put, or transfering to your new employer’s plan.

How do I compare fees within my 401(k) vs. IRAs?

Now let’s talk costs. Deciding on an IRA versus your 401(k) account often comes down to comparing the fees. Here’s a breakdown of what types of fees to look for:

Asset Management fees: These are important to review, as they can have a large impact on your savings. Asset management fees are typically calculated as an annual percentage of your portfolio balance. In general, investment managers tend to charge 1% or more, and robo-advisors charge less, from .25% - .89% on average. As a note, Guideline 401(k)s and IRAs do not charge any management fees to a participant’s account balance.
Administrative fees: These costs typically cover the administration of your plan. Providers can charge these in different ways, like flat fees or a percentage of your assets. Also, when it comes to 401(k) plans, some employers cover the administrative fees, whereas some pass that cost on to the plan participants. As a general note, most 401(k) plans charge administrative fees, whereas many IRAs do not. Guideline, unlike many providers, does not charge any employee-paid 401(k) administrative fees.
Custodial fees: The custodian, the entity that physically holds your assets, will also charge a fee for their services. Generally, this fee will be charged as a percentage of assets in the IRA or 401(k) account. Currently, Guideline covers all custodial fees for its clients.
Mutual Fund expense ratios: These charges come out of any mutual fund’s daily gains, or are added to daily losses, for any mutual fund investment you hold in your account. They are used to pay fund managers and other other expenses to maintain the fund. Mutual fund costs have been consistently decreasing in recent years, and you can now fund very good quality mutual funds with expense ratios under 0.5%.
Mutual fund transaction fees and sales loads: Some mutual funds may charge you a one-time transaction fee or a big commission to the representative who sold you the fund. Keep an eye out for these types of fees in an IRA or brokerage account. Most 401(k) providers do not have these fees.

How do I compare IRA providers?

First, make sure you find an IRA provider whose fees are straightforward and easy to understand. Flat fees—and not percentages—tend to be easier to calculate and let you know upfront know what you’re getting into.

In current economic times, most people want an IRA provider that has lower fees, which means:

Management fees at or below .5%
Low administrative fees
Low mutual fund expense ratios(majority of your investment funds below .5%)
No transaction fees and no loads

Beyond the fees, you want to find a modern IRA provider that will be your long-term partner. You may be saving through your IRA provider for decades, after all.

Look out for:

Great customer service: Retirement accounts are complicated, and you’ll have questions from time to time. Be sure to find a provider than has knowledgeable specialists on all things retirement, and who are available to answer your questions quickly, whether that’s online or by telephone.
User-friendly website: It’s easy to overlook, but this is a crucial differentiator. When it’s time to transfer, move funds, adjust your portfolio, or take distributions—you’ll be doing this all online. Find a provider with a modern website that’s easy to navigate.
Wise selection of investment options: Sometimes less is more - if you are an inexperienced investor, you may want a more limited, highly vetted selection of investments to choose from, instead of having to do the research yourself.

How do Guideline IRAs stack up?

In addition to employer-sponsored 401(k) plans, Guideline offers IRAs for individuals. Here’s what makes our IRAs an industry-leading option:

Simple setup: It takes minutes to roll over retirement accounts, check balances, change contribution rates, and more. Plus, there are zero startup costs to rollover your 401(k) account.
No hidden fees: We charge just one flat rate every month. Plus, we have low pass-through custodial fee of 0.03%, which equates to 25¢ a month for every $10,000 saved.
Low expense ratios: With an average blended portfolio expense ratio of 0.06%, Guideline offers some of the lowest cost investment funds available.
Intelligent investments: Choose from 40+ low-cost mutual funds, or select a managed portfolio that fits your retirement goals.
Automatic Rebalancing: We buy or sell funds in your portfolio to keep your target allocation on track, at no extra cost to you.

Guideline also uses an independent trust company to provide custodial services. They are responsible for holding your investments, providing an extra layer of governance and accountability.

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Elvis Costello once sang, “I feel like a juggler running out of hands.” And can anyone relate to that more than moms?

Thank you mom for working tirelessly — in the office and out. Thank you mom for all of the wisdom and advice and for all those little things that add up to a whole lot.

Thank you mom, for everything.

Gradient Advisors, LLC offers a diverse platform of investment options to address your clients’ financial goals and provide them with sound investment advice and possible financial strategies. If you are ready to discover a new way of doing business and serving your clients, we can help lead you to your goals. Learn more about Gradient Advisors today! https://bit.ly/2J2QBVz

Financial Advisor Magazine has named Gradient Securities as one of its top broker-dealers for a sixth consecutive year.1 With our always growing roster of services, committed team of experts, progressive creative services and more, Gradient Securities is perfectly positioned to boost your bottom line. Visit whygradientsecurities.com to learn more about how we can help you grow your business!

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