Tuesday, July 15, 2014

Longevity Insurance-the Newest Thing

How old do you wish to live? Have you saved enough for your retirement, so you won't outlived your savings? Or maybe you should consider purchasing longevity insurance.  An article in the NY Times on July 1, 2014, Longevity Insurance Joins the Menu of Retirement Plan Options discusses how recent changes to tax rules will allow the use of longevity insurance. What is longevity insurance you ask? According to the article "[l]ongevity insurance is actually a deferred-income annuity, in which a person pays a lump sum premium to an insurer in exchange for a guaranteed lifetime income stream that begins several years later...."  The article explains why previously these annuities couldn't be used within retirement plans because of the required minimum distribution rules.  With the rule change "workers can now satisfy those rules if they use a portion of their retirement money to buy the annuities and begin collecting the income by age 85."

There are some restrictions on the use of annuities, according to the article. For example, "[t]o avoid the distribution rules... retirement plan participants can use no more than 25 percent of their total account balances, or $125,000, to buy the annuity, whichever is less.... [a]nd anyone who inadvertently exceeds the limits will have the opportunity to correct the error without penalty." Additionally, they "must also be relatively basic and cannot be larded with many of the special features .... [b]ut ... providers will be permitted to sell a feature that guarantees that the annuity owner’s beneficiaries will receive the premium amount originally paid" less previously made payments.   Read the entire article here.

http://lawprofessors.typepad.com/elder_law/2014/07/longevity-insurance-the-newest-thing.html

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