Here's a product that you're unlikely to hear about but can provide impressive income as part of a long-term strategy, writes Stan "The Annuity Man."
The most controversial topic in the annuity world is the annuity income rider. An income rider is an attached benefit to the policy that guarantees a specific growth amount that can be used for future income.
Because of the higher percentage rates that riders offer, a vast majority of agents improperly sell them to a public hungry to hear someone talk about high interest rates on anything. Unfortunately, there are millions of people who purchased an income rider and don’t know (yet) that they can only access that money as an income stream.
Income riders do work with what I call target date income planning, but it has to be positioned and explained properly.
People call me every week and say: “Stan, I have an annuity paying 7%.” No, you have an income rider that increases your income account by 7% during the deferral years. It is Monopoly money unless it is used for income. That “little” detail seems to be left out, or at a minimum glossed over, by most agents and advisors.
A new product that has just come on the annuity scene is called Longevity Insurance. Neat name, but the actual definition and function of the product is a deferred immediate annuity. In other words, Longevity Insurance is a Single Premium Immediate Annuity that you put off (i.e. defer) taking income till a future date.
You are never going to go to a "bad chicken dinner" seminar and be shown this strategy because the commissions are very low to the agent. Most agents and advisors are never going to show you this option because the commission paid on Longevity Insurance is, on average, 50% to 90% less than if they sold you a deferred annuity with an income rider.
That fact alone should be reason for you to consider Longevity Insurance. It must be good!
Because Longevity Insurance offerings have improved so much in the last few months, I am now showing both Longevity Insurance and income riders for all target date income proposals so that my clients are familiar with both choices and can decide which one best fits their specific situation.
My prediction is that the “smart money” will start moving toward Longevity Insurance based solely on the mathematical calculations when comparing target date annuity plan choices. Contractual numbers don’t lie.
There are only a handful of companies that currently offer Longevity Insurance, and the newer offerings protect your principal as well, which differs from the original versions. When compared side by side to an income rider, Longevity Insurance will provide a higher lifetime payout 100% of the time.
So what’s the catch? Below are some key points (both upside & downside) when considering Longevity Insurance as a lifetime income component within your portfolio.
Upsides of Longevity Insurance
Downsides of Longevity Insurance
From a planning standpoint, Longevity Insurance is a great strategy for your future income needs. I am now using it with my clients for lifetime laddering strategies and for achieving the highest payout for target date income planning. If you are planning for lifetime income in the future, then Longevity Insurance has to be considered.
A reporter recently called me the National "Annuity Consumer Advocate" in the same vein as Ralph Nader and Clark Howard are for other products and services. My goal as Stan The Annuity Man is to be that person, and I hope to continually educate the public on the complex and sometimes ugly world of annuities and become the go-to resource for "all things annuity."
I recently published The Annuity Stanifesto, fully explaining in an easy-to-read format how these misunderstood and misrepresented products actually can work within your portfolio. You can get a free copy of The Annuity Stanifesto by going to my Web site and downloading your copy.