What is a Longevity Annuity?
A longevity annuity, also known as a deferred income annuity, is a financial product designed to provide retirees with guaranteed income starting at a future date, typically when they reach an advanced age, such as 80 or 85. This type of annuity is primarily aimed at addressing the risk of outliving one's savings, ensuring that individuals have a steady stream of income in their later years.
How It Works
To purchase a longevity annuity, an individual makes a single lump-sum payment to an insurance company, which invests these funds. In exchange, the individual receives regular income payments that begin at the predetermined future date. This means that the earlier one purchases the annuity, the larger the monthly payments can be, as the insurance company has more time to invest the funds.
Benefits
- Guaranteed Income: Provides financial security in later life.
- Protection Against Longevity Risk: Essentially insures against the risk of living far beyond average life expectancy.
- Potential for Growth: Some products may offer the potential for cash value growth before payments begin.
Considerations
It's essential to consider factors such as fees, payout structures, and the solvency of the insurance provider before investing in a longevity annuity. It’s advisable to consult with a financial advisor to assess if this option aligns with one’s retirement goals.