Joe Marullo

Joe Marullo Insurance & Retirement Services

Joe Marullo picture

Not having enough money saved to last them in their golden years. Industry expert Tom Hegna has written extensively about this fear in both of his books “Don’t Worry, Retire Happy” and “Paychecks and Paychecks.” He states, “The number one risk retirees must take off the table is longevity risk because it is the multiplier of all the other risks.”

Time and again, surveys show a top concern for pre-retirees is longevity risk. In one survey conducted for Allianz Life in 2017, 63% of respondents said they feared running out of money in retirement more than they feared death. In our younger years, we are looking to accumulate, where the rate of return is essential. However, the day we retire, all the rules change; we are now are in the distribution phase.

For example, let’s say we are going to climb Mount Everest. Our goal would be to get to the top. Not necessarily; our ultimate goal would be to get back down the mountain safely. When climbing the mountain, we are younger and in the accumulation stage; however, when we start down, we are in the distribution phase. Now, where do most climbers get killed? You guessed it, coming down the mountain. Why? There are many risks, unpredicted storms, avalanches, falling in a snow hole. With retirement, we have market risk, inflation, long-term care, deflation, the sequence of returns, rate risk, mortality, longevity, withdrawal rate, taxation, regulatory risk, etc.

But the number one risk to take off that mountain is Longevity Risk because it is a multiplier. If you live too long, all these risks multiply. How do we take longevity risks off the table? Stocks, bonds, mutual funds may not do it, as they can have market risk on a downturn. Your paycheck must be guaranteed, and your income immune from risk.

One commonly used approach to guaranteed lifetime income is an annuity. A lifetime income annuity, a deferred income annuity, or an income/withdrawal benefit rider from a fixed or variable annuity that is its period.

Many people say they hate annuities. So, it is appropriate to ask, do you receive Social Security? A pension? These are the same as a lifetime income annuity offered by an insurance company.

A white paper about longevity from the Financial Research Corporation (FRC) states, “Planning to age 90 feels good because few people believe they will live to 90, however, 33% of healthy 65-year-old men, 44% of women, and 63% of married couples will have at least one spouse live beyond age 90. Simply put, a Financial Plan assuming age 90 will fail 63% of the time.” To not be in the 63%, longevity risk must be off the table. Another quote from the FRC says, “Income annuities offer features others cannot- High cash flow, uncorrelated to market returns: retirement alpha in the form of mortality credits, which only life insurance companies can manufacture; longevity hedging and liquidity features.” Only Life Insurance Companies can offer annuities.”

When storybooks and old movies end, the main characters always live happily ever after. Research shows that retirees who have lifetime income sufficient for covering their basic needs, factoring in inflation, taxes, and Required Minimum Deposits (RMD), are happier and live longer.

If you do not want fear and worry to be a factor during retirement, then a guaranteed lifetime annuity is an obvious choice for financial freedom.

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