What is a Longevity Annuity?

We already discussed what an annuity is and the basics of the various types of annuities including fixed annuities. Today, we’ll take a look at longevity annuities.

Longevity Annuity (Flickr)

A longevity annuity is a form of annuity that the annuitant pursues once he or she has already retired. For example, someone who has just recently retired may pay a lump sum for a longevity annuity that will begin to make its payments to the annuitant after he or she turns 80. Because technology is advancing and we are living longer and longer, many people have found themselves with little money to fall back on once they grow old enough. A longevity annuity helps to alleviate this problem.

Compared to immediate annuities, the amount of the money you get upon payouts is much higher, dollar per dollar. This is because the payouts are only made at the later years in life, allowing the compounding of the money to take place quicker. This is also because your expected life span is shorter at such an age, so the payouts are going to be larger.

The main benefit you receive by purchasing a longevity annuity is that you receive the same amount of financial protection you would get through other insurance methods at a much lower cost. On average, money allocated toward a longevity annuity has about five times more spending benefit than money in an immediate annuity dedicated toward the same purpose.

The savings that you get from purchasing a longevity annuity as opposed to another form of annuity not tailored to reaching an advanced age are well worth it. This money can be put toward other investments or passed down to your family.