Is Longevity Insurance Right for You?

Annuity payments - depending on how taken -are not entirely taxable-only the gain. And if you "annuitize" an annuity - or take payments from a SPIA - only a portion of the payment is taxable-the older you are the lower the taxable amount.

At the ages you are speaking of - ages 85 and beyond -less than 15% of the payment is subject to tax. At age 65 approximately 30% is subject to income taxation.

Your comment that annuities are taxable is thus misleading.

Although these longevity annuities may have their place - the same thing can be accomplished by purchasing a SPIA with an inflation rider - and there are several advantages to this approach-(1) you have ability/flexibility to take income much earlier - so that your income is greater from ages 65-85 ( as an example) as opposed to waiting to age 85 to distribute income.

(2) obviously you may not live to 85 - or much beyond 85 - and by purchasing a SPIA at - for example - age 65 - with an inflation rider - you eliminate that issue.

(3) SPIA income is generally excluded from calculations for medicaid eligibility. In fact the courts have determined this is so.

(4) Presuming you are married you can choose distribution under a joint and survivor mode-thus ensuring that both you and your spouse receive income for life. Thus you cannot outlive your income.

For these reasons I think longevity annuities have a very limited place-and for most people a traditional SPIA with an inflation rider would make more sense.

jim hyndman of NY 9:22AM May 01, 2009