With nest eggs collapsing and one in three baby boomers expected to reach 90, running out of money in retirement is a major concern among retirees. A reverse mortgage might be a perfect fit for some but other new products are starting to emerge as well.
In Annuity Addresses Longevity Issue, WSJ writer Anne Tergensen describes how a relatively new type of annuity called a longevity policy allows you to convert a payment into a stream of income for life. It differs from typical annuities that payout immediately, these don’t kick in for years.
For example, a 65-year-old man who puts $100,000 into a longevity policy today with MetLife could receive $83,600 a year from age 85 on. That’s about 10 times what he would get with a conventional income annuity.
One big advantage: Annual withdrawals of 4%, or even a bit more, from a nest egg today are less risky when there’s a guaranteed safety net 20 or 25 years down the road. "It’s a lot easier to plan to make your assets last until these payments begin than it is to figure out how to stretch them for the rest of your life," says Jason Scott, managing director of the Retiree Research Center at Financial Engines, a Palo Alto, Calif., company that manages 401(k) accounts.
Part of the negative on these types of products is that if the person dies prior to the payments kicking in, they forfeit the money. According to the article, only a handful of insurers are offering these products, including MetLife and Hartford Financial Services Group.