Mary Beth Franklin

Retirement 2.0blog

Mary Beth Franklin - also known as the 'client whisperer' - on what your clients really want when they talk about retirement.

Try out the new longevity insurance calculator

By Mary Beth Franklin

Feb 16, 2012 @ 11:17 am (Updated 11:32 am) EST

In case you missed my last column in the print edition of InvestmentNews on February 13, 2012, I wrote about one of the latest buzz words in retirement income planning: longevity insurance.

Longevity insurance is a deeply deferred income annuity that is designed to begin payouts years or decades in the future when the owner reaches age 80 or 85. Using longevity insurance as part of a retirement income solution can help solve one of a financial adviser's biggest challenges: how to make sure your clients' money lasts as long as they do—even when you don't know how long that might be.

Think of longevity insurance as a bookend. Under a worst-case scenario, your client's money only needs to last until the longevity insurance payouts kick in. And because that will be many years in the future –and not at all if the client dies before the due date—longevity insurance costs just a fraction of an immediate annuity that would provide the same amount of income. In its purest form, longevity insurance offers about the same odds as a roulette wheel. Still, it can be a good bet.

In that column, I mentioned a fascinating new research paper by the Brandes Institute, the research arm of Brandes Investment Partners in San Diego. The paper argues that longevity insurance, while not right for everyone, may be appropriate for boomers who are relatively healthy, not in need of substantial additional income for the next few years, and have a sufficiently large investment portfolio so that the lump sum premium is only a modest proportion—ideally 10% or less—of their assets. As promised, you can now test drive the Brandes Retirement Simulator (View here.)

It projects a range of outcomes and solutions that incorporate personal life expectancy, based on current health and family history, and the effect of longevity insurance on overall investment strategies. Take it for a spin and let me know what you think about it.

And, speaking of retirement income plans, InvestmentNews is surveying advisers about their strategies for creating retirement income for their clients. Please take a few minutes to complete the survey, which can be found here. The results will be featured in the March 26th issue of InvestmentNews as well as on investmentnews.com

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