An Idea for you Future Centenarians

"A centenarian is a person who lives to or beyond 100 years of age.  The term is associated with longevity." - Wikipedia

"Mere longevity is a good thing for those who watch life from the sidelines.  For those who play the game, an hour may be a year, a single day's work an achievement for eternity." - Helen Hayes

and a follow on to the above quote (one of my favorites so I couldn't resist)

"Life is not a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside, thoroughly used up, totally worn out, and loudly proclaiming - WOW, what a Ride." - Anonymous

Since records began there are only 35 people who have indisputably reached 115.  Now that is a great innings but even more amazing is that it is estimated that one third of all babies born in the United Kingdom in 2013 are expected to reach 100.  Considering that the UK currently only has 21 out of every 100,000 people reaching 100, well behind Japan, the world leader, with a rate of 43, to think that the estimate expects 33,000 of them to reach 100 seems hard to believe.  That said longevity is certainly something that most people want and are starting to expect.  People are working and living longer and this is starting to have a prolonged impact on everyone's portfolios.

Making your portfolio last through your retirement is of high importance and few seem to have it adequately taken care of but it may be possible to insulate yourself by looking to the insurance industry.  Now I am not an insurance person but I do believe that the industry has a number of products that can alleviate the problems of longevity.  Of course this assumes that their actuaries continue to calculate the numbers correctly and the company remains afloat but this is a fair assumption so for the purposes of this blog we will expect that the annuities offered continue to pay out.  Now annuities are not my favorite product as they tie up a lot of capital (sometimes all of it) and can remove the ability to access your capital if you ever need to draw on it (think a medical emergency) so I typically steer clear of them but one may be of interest - the Longevity Annuity.

With the longevity annuity you give the insurance company a lump sum today, they invest the proceeds on your behalf and at a pre-selected date many years in the future it starts to pay out an annual stream of cash through the life of the purchaser.  Now the downside is if you die prior to the annuity kicking in the value of the annuity is lost so it is a bit of a game of cat and mouse trying to decide when it should be activated but it can be looked on as a sort of a living insurance policy (rather than life insurance which pays out when you die).  So should you happen to live far longer than your retirement funds can support you then it kicks in to save the day.  Due to the compounding of the returns inherent in the policy the longer that you can delay the activation date the larger the pool that you can draw on and hence the larger the annual payout.  As an example if you are 50 today and you put in $100,000 into a longevity annuity that only starts to payout when you get to 90 you would achieve a benefit in the range of 20 times what you would receive today.  This amount would grow to more than 35 times if you waited another 5 years but of course it is a risk that you may not even make 80 let alone 95.

However the power of this investment is that for a small fraction of your intended retirement budget you can put into place a net that will actually pay out a significant amount exactly at the time when you need it most.  As we have seen above the longer the payments are deferred the larger the policy grows so if you can calculate a date at which your current retirement account will run out then you can purchase a plan that kicks in at that time.  So in the event you live longer than expected (a good thing assuming you are in good health) or longer than you can afford (a really awful thought) this could alleviate a lot of the stress associated with retirement.  A wonderful solution to a massive problem and one that might mean you actually live longer.

Now a few caveats before you rush out and buy one of these; shop around as you may find better offers from different insurers, make sure you use a tier one insurer as you are relying on them to be around to pay you out in 40 years or more and do not put more than 10% of your retirement funds into this product as you want to make sure you enjoy your retirement (see quotes above).  So while I am not going to say this is the best investment ever, it seems to me to make sense for a lot of us to look into as a potential solution to a massive problem.  Now where is my paddle, board and board shorts and I better start to watch my calorie intake as I plan to take full advantage of the extra time!!