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2 October 2020 Financial Analysts Journal Volume 76, Issue 4

Provision of Longevity Insurance Annuities

  1. Dale Kintzel
  2. John A Turner

Using simulations, the authors demonstrate the need for longevity insurance annuities, which begin payment at advanced older ages. They find that such annuities can help individuals reduce their longevity risk in retirement.

Longevity insurance annuities are deferred annuities that begin payment at advanced ages, such as age 82. They provide insurance against running out of money in old age. They simplify the retirement spend-down calculations in that they can be used to convert a problem with an unknown end date (date of death) to one with a fixed end date, which is the start of the longevity insurance annuity. They may allow retirees to have riskier portfolios because they are a steady source of income. In this study, we compared the provision of longevity insurance annuities in the private and public sectors. We analyzed the need for longevity insurance annuities using Monte Carlo simulations that demonstrate the risk of running out of money in a 401(k) account and modeled how longevity annuities might work in practice.
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