Longevity Annuities Appeal to Both Young and Old Consumers

longevity annuity deferred income

Written by Hersh Stern Updated Monday, May 27, 2024

Longevity annuities, or deferred income annuities (DIAs), are no longer deemed merely retirement income instruments; there is a growing interest in the benefits offered by longevity annuities among pre-retirees. Longevity annuities offer clear benefits for those seeking to create their own personal pension during retirement. These annuities also offer contract owners the benefit of capturing mortality credits without the associated equity risk.

When annuity contract owners die prior to their anticipated life expectancy, mortality credits are created. Premiums paid by this pool of contract owners contribute to the overall profit pool which benefits those annuity owners who live the longest. Mortality credits increase over your lifespan, often creating a significantly higher return than would be generated using a traditional investment portfolio of stocks and bonds.

Most longevity annuities are purchased by individuals ranging from 50-70 years of age. However, more and more pre-retirees are choosing to invest premium into this type of annuity contract as a form of longevity protection. Essentially, they are insuring their future income stream with today’s premium dollars.

While insuring your future income stream certainly has significant financial benefits, there are a few factors to take into consideration prior to placing your premium dollars with an insurance company. First, be sure to choose an insurance company with strong financial ratings. Secondly, balance your investment portfolio with other financial products to help hedge against the eroding power of inflation. Thirdly, review quotes from several leading insurance companies and compare pricing, prevailing interest rates and product features offered. And finally, keep in mind that mortality credits offer the greatest financial benefit to you later in life. So if you extend the start date out until you are 80 years old, your income at that age will be significantly greater than if you commenced receiving income at age 70 or 75. Your insurance agent should help you decide not only what is the best age to buy your longevity annuity, but at what age to withdrawal income, too.


University of California San Diego

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