Fidelity throws its weight behind longevity annuities

The Boston retirement-services giant will make the deferred-income annuities available for retirement plans

Aug 21, 2015 @ 11:45 am

By Trevor Hunnicutt

Fidelity Investments is giving its clients a new option for planning for the costs and risk of living longer.

The retirement-plan services giant said Thursday it will offer a variety of deferred-income annuities to individual retirement accounts. With those products, clients buy the contract now but don't receive an income stream until far in the future, as late as in the client's 80s.

Fidelity said its network will include offerings from Principal Financial Group, the Guardian Life Insurance Co. and MetLife Inc.

Despite a low-interest-rate environment that's been tough on insurance products generally, deferred-income annuities are growing fast and are considered by some to be a compelling way to address the problem of retirees outliving their savings.

The rules for so-called qualified longevity annuity contracts, or QLACs, permit participants in 401(k)s and IRAs to use up to 25% of their account balance, or $125,000 — whichever is less — to buy the annuities. Money that goes into the contracts is exempt from required minimum distribution rules that kick in at age 70˝.


Last year, the federal government created a new rule on longevity annuities, encouraging retirees to protect themselves against the risk of outliving their retirement savings.

Sales of deferred-income annuities hit record levels last year at $2.7 billion, up 22% from 2013. But that's still a small share of the $236 billion in annuities overall, according to LIMRA LOMA Secure Retirement Institute, a trade group.

Broker-dealers have been fairly slow to add the products to their platforms for financial advisers. The firms have wrestled with questions over who ensures the contract applications meet federal guidelines.

Jessica A. Searcy-Maldonado, vice president at Searcy Financial Services Inc. and a specialist in retirement plans, said the widespread adoption of these products in retirement plans could still take a long time.

Among the limitations of the products, she said, are that many QLACs don't allow withdrawals and don't have a cash value. Some of the products do not provide cost-of-living adjustments except as an added feature for additional cost. And many also require an add-on that returns money to you if you die before the income starts, a rider that could have negative estate-tax implications.


Ms. Searcy-Maldonado also said regulatory scrutiny on higher-fee and illiquid products in retirement accounts could hamper sales.

Cyrus Taraporevala, president of Fidelity Investments Life Insurance Co., said the longer life spans of Americans often means planning for expenses that last three decades or more.

"Qualified longevity annuity contracts provide a way for investors to create guaranteed cash flow beginning later in life, while also potentially reducing their current taxes,” he said in a statement. Fidelity, based in Boston, administers $5.3 trillion of assets.


What do you think?

View comments

Recommended for you

Featured video


Why advisers are pessimistic about the economy

Deputy editor Bob Hordt and senior research analyst Matt Sirinides discuss a recent InvestmentNews survey of advisers, most of whom see a recession ahead before the next presidential election.

Recommended Video

Keys to a successful deal

Latest news & opinion

Blackrock exposed data on 12,000 financial advisers

The data appeared in three spreadsheets, linked on one of the New York-based company's web pages dedicated to its iShares exchange-traded funds

Advisers throw cold water on FIRE movement

Millennials love it, advisers don't: Turns out, extreme early retirement is a suitable goal for almost nobody.

10 universities with the most billionaire alumni

These 10 American schools have the greatest number of alumni who are billionaires.

Top-performing ETFs of 2018

The markets took a beating last year, but these exchange-traded funds bucked the trend

Morningstar says investors rushed the exits in 2018

Net flows into mutual funds and ETFs were the lowest since the 2008 financial crisis, while money-market funds captured inflows.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print