In today's Wall Street Journal the "fund fiend" Ian McDonald joins the growing list of investment writers who are coming around to that old time religion of using immediate annuities to eliminate "mortality risk" by transferring the risk of out living your assets to a life insurance company.
As I noted in my previous posting about the Wharton School Study and Ben Stein's recent column on Yahoo Finance, the general business and investment press is finally waking up to the reality that those of us in the structured settlement or settlement planning profession have realized for years. That being, that with improvements in health care, medications, home health aides, reduction in smoking and increases in exercise, US citizens are now living longer then at any time in history, and the life span is only going to continue to climb as medical and pharmaceutical technology continue their impressive break throughs.
In the United States a baby born in 2005 will live up to 78 years on average, thats up 3% from the prior decade. However, what is vitally important for people to realize is that 78 is the AVERAGE, which means that over 50% of the population will live longer then 78, some much longer. As the article in today's paper states, most people need to plan their retirement, and their income, as if they will live to be 100, and trust me most people aren't doing that now. In fact the article goes on to state that one of the nation's biggest concerns is going to be a wave of baby boomers entering retirement with insufficient assets to start with then running out of money as they live far longer then their ability to live on their accumulated assets and the income it generates. The bottom line on mortality and life expectations is that if you make it to 65 or 70 chances are excellent you are going to make it well past 90 as most of the accidents and life style "killers" typically strike you before those years.
Anyone familiar with the planning issues faced by structured settlement professionals every day realizes that the single best option for any person in the United States who has limited assets but needs to generate income for life off those assets is the single premium immediate annuity. Of course in structured settlements the income is tax free, but even in a non-qualified immediate annuity the return of principal is tax free and the taxable portion is spread out over years or decades through the exclusion ratio. However, whether taxable or tax free the income is guaranteed by large, highly rated life insurance companies on a set schedule for as long as the annuitant or policyholder lives, thus transferring the risk of "living too long" to the insurance company instead of trying to manage your portfolio and assets for decades with elevated risk and elevated costs.
As I have stated before the single premium immediate annuity should be the foundational planning tool of the vast majority of settlement recipients as well as trial lawyers and others who can avail themselves of it in their income or retirement planning.
Many major life companies, among them Prudential Securities, AXA Financial, Lincoln Benefit and SunAmerica have begun massive educational and advertising programs aimed at increasing the awareness of investors and advisors of the risks and costs of trying to manage funds for decades while guessing at mortality risks and future costs. I don't advocate that anyone put all of their money into an annuity, but if you are focused on income, or you have limited resources, or if you have reached the end of your productive earning years through disability or retirement, then you absolutely MUST look at the options provided by immediate annuities and the new variable annuity contracts in order to secure guaranteed minimum life time income that you can't out spend, out live or have managed away by poor investment advisors.
