Considering Longevity Annuities

Conservative models for the next few decades of human life spans in the wealthier regions of the world, those used by insurance industry giants to create their products, predict only a gentle continuation of present trends towards greater life expectancy. These gains clock in at the moment at 2.5 years every decade for life expectancy at birth and one year every decade for adult life expectancy. The actuarial community has for the past decade increasingly hedged its models with pronouncements of uncertainty, which is eminently sensible in an age of accelerating progress in biotechnology. Still, despite this, the financial industry is comfortable offering a class of products varying called longevity insurance, longevity annuities, deferred income annuities, life annuities, or a variety of other terms: pay the company a lump sum now, and starting at some point in the future you are paid a regular income until you die. As for any such transactions, the company makes money on this proposition by correctly predicting demographics such that, on average, it pays out less than it can make with the lump sum.

A secure retirement, no matter how long you live

Longevity annuities have actually been around in various forms for a decade or more. They've been getting a lot more attention lately, however, because the U.S. Treasury Department issued rules last year that make it easier and more attractive to buy a certain type of longevity annuity within retirement accounts such as 401(k)s and IRAs.

Essentially, a longevity annuity is a twist on a somewhat more familiar type of annuity, the immediate annuity. With an immediate annuity, you hand over a sum of money to an insurer in return for guaranteed monthly payments that start at once and continue for the rest of your life. (You can also opt for payments to continue as long as either you or your spouse or partner is alive.)

Like an immediate annuity, a longevity annuity provides guaranteed income for life, except that while you invest your money now, the payments don't begin until later, typically much later, say, 10 to 20 years in the future. In effect, buying a longevity annuity is a bit like buying a life insurance policy, but instead of making a payment to your heirs when you die, a longevity annuity makes monthly payouts to you for the rest of your life, assuming you're still alive when those payments are scheduled to begin.

Now in the world of yesterday, in which there was only a little uncertainty in the possibly unexpected upside of life expectancy, this is all fine and well. Some people want the assurance that they will not run out of money in later retirement, and judge the direct and opportunity costs of setting up a longevity insurance policy to be worth it for the end result of peace of mind. Fortunately we no longer live in that world. We live in a world in which there is a good chance that a range of rejuvenation therapies after the SENS model will start arriving for early adopters - people willing to dive into medical tourism - from five to twenty years from now, depending on circumstances. Interestingly, however, those of us reading this now are in a small minority in buying into this vision of the future. Very few people follow medical research closely, and comparatively few people think that the future of aging will be radically different from aging today.

This arguably presents an opportunity to profit from being in the know. As I put it some years ago, take the money and run: sign a longevity insurance policy with a large company, making sure that the fine print doesn't sabotage the plan, and then strive not to die from any accidental cause as we enter the age in which medical control over the causes of aging becomes possible. In making use of future rejuvenation therapies, your healthy longevity will likely prove to be significantly greater than that predicted by the current actuarial consensus. However, it is worth remembering that adherence to contracts over the long term is for people who can't afford to buy the political process:

It would seem to be the case that either:

a) enough people die at younger ages than you that the offering company makes money and stays in business. In other words, healthy life extension research did not succeed rapidly enough to help you either - you will age, suffer and die.

b) healthy life extension takes off and the insurer is left with a huge liability, which may or may not actually be paid. That depends on how well the insurer handled the funds, the level of economic growth across the years, and the level of interest in the original product, amongst other items. Bribing politicians to write new law to remove obligations is a very predictable out, however.

c) the product is of poor enough value that the company can offer it even though healthy life extension research succeeds - in which case you would likely have been better off placing your funds elsewhere.

So in addition to betting that the company you sign with remains solvent for long enough to make it worthwhile, you are also betting that the losses from longevity insurance caused by large gains in life expectancy across most of the population will not otherwise sink the industry. There is no free lunch, and it seems likely that creating an exceptionally good deal for yourself that lasts decades or longer is only possible when few other people also think they can get a free lunch from longevity insurance and act accordingly.

Comments

I was wondering about this subject and if it was possible to retire and live off investment revenue for a thousand years if I liked. It seems to me the best way to be positioned financially now for indefinite lifespan is to just keep accumulating index funds, particularly those paying dividends like the ETF SDOG, I believe in the long run it will pay better than most other longevity instruments with more dependability than a contract with any single company.

Posted by: Corbin at November 4th, 2015 8:28 PM

I have thought about this in the past 10 years myself although most people don't think beyond living the "now" 70-80 years. I am amazed people think life will stay the same, minus a few exceptions such as self-driving cars, and 3-D printed organs.

As a real estate investor, I see having a 30 year mortgage (or less) on an investment property as advantage over the long run if we end up living much longer than 100 years old.

And, yea, if we do get into the longevity insurance policy scheme, we could very well "win" the game, at least until the company goes out of business.

We need to be (financially) prepared before robots put many of us out of work, anyway.

Posted by: Robert Church at November 4th, 2015 9:34 PM

This is going under the assumption that everyone will start getting lifespan increasing therapies as soon as they come out, which IMO is an unlikely scenario. Beside the obvious issue of economics, life extensionists like us will likely become aware of treatments before they become widely popular, will likely be better at deciphering which treatments are most necessary, and also most likely will be living somewhat healthier lifestyles to start.

Most of all, though some people will likely be convinced by mouse work a sizable chunk of people will remain skeptical until the first group of life extensionists starts living routinely past 120, serving as the first true human experimental proof of principle. That's at least a full generation off, and thus, the pioneers will likely reap the benefits before anyone else without taxing the system too much.

Posted by: Kris at November 5th, 2015 9:47 AM

I don't know, Kris. I think it'll be pretty highly publicized leading up to it's release, and a lot of people will hear about it and probably be lined up to get it. If it gets released, that is*. Or if it'll even released as a comprehensive suite, instead of rejuvenating individual things, like your heart lets say. I have a sneaking suspicion it would be available in some places in the world before others as well. And while adoption wouldn't be 100%, I think there would be a lot of people who will be taking it before they see people living past 120. Though, that being said... I can't imagine someone at 20 taking it when they wouldn't need it until they're 60 either... so it's likely it would be spread out over a bit of time.

*(Disclaimer: I hope it does get released. I want nothing more than for this to happen, but I'm having my doubts on if it will be allowed to come to fruition lately with all the people screaming about overpopulation, resources, and potentially tons of jobs disappearing due to automation in the next 40 years give or take. It really seems like more and more people are screaming about overpopulation lately. Maybe I read too much on reddit futurology, though as far as displacement due to job loss though, so who knows. I understand other technologies will continue to evolve along side this but we'll see. It's hard being hopeful sometimes when most people look at you like you're some kind of selfish, greedy, sociopath for wanting to live longer and healthier).

Posted by: Ham at November 5th, 2015 12:49 PM

Kris, I have to disagree with that assessment, because the first life extension therapies will not be labeled "life extension". They'll be marketed as treatments for age-related conditions.

Posted by: Slicer at November 5th, 2015 4:10 PM

The first treatments will become popular once Brad Pitt goes on TV with a younger face after clearing glucosepane or when the first NBA with myostatin players is livestreamed, or something along those lines. Common people are not going to wait a century if the result is staring them in the face.

Posted by: Arren Brandt at November 5th, 2015 10:38 PM

I hope you're right Slicer. Because I think that's much more palatable to the general public that doesn't want to see this happen than the term "cure for aging", or "life extension". Though even that won't make everyone happy. Hell, someone commented on an article about gene editing putting leukemia into remission saying we shouldn't be doing this because not enough people die now as it is. Can't please em all.

Posted by: Ham at November 6th, 2015 10:35 AM

If 65-year olds have an average life expectancy past the age of 80, then the premium you pay for this insurance must be higher than the payout you take if you survive past 80. Else, the insurance company is sure to lose money.

Insurance companies are not in business to lose money. That means this insurance will cost you more than it will pay you if you pass 80. It likewise means you are certain to lose money.

As an investment, it’s an unquestionable winner for the insurance company and a sure loser for the insured.

Posted by: Yuri at November 9th, 2015 12:58 AM

@Ham: Funny how those who talk about "overpopulation" never seem to consider themselves part of the "overpopulation" and never volunteer to off themselves to make the "overpopulation" better...it's conveniently always other people who are the problem.

Posted by: KC at November 10th, 2015 11:20 AM

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