The longer people live, the more questions Annuity FYI receives about the right products for people over 85. With such a demand for information from both advisors and investors alike, we’ve put together an article to compare annuities for investors 85 and older. “Are Annuities Right for Investors Over the Age of 85?” contains a great chart comparing the types of annuities and which benefits that those over the age of 85 should look for.
One of the most important things that older investors need to know is whether or not there is a surrender charge for their annuity. Some surrender charges are null and void if an investor passes away during that time frame, but then you’d need to make sure that your heirs will be able to inherit any remaining money left in your annuity. For the sake of making comparisons, the article uses examples for an 85 year old male investor putting $100,000 into an annuity. The CDC says that the average 85 year old will live 6.5 years until the age of 91.5.
The first annuity we look at is an immediate annuity with a lifetime income guarantee. While these are very popular investments for younger people, they are not a good fit for those 85 and over. If you live to the average age, you would only receive $78,000 of your money back and nothing goes to your heirs. While you could get a great return if you live well beyond the average, this shouldn’t be a risk anyone takes because there are much better options out there for those 85 and over.
Period certain and cash refund immediate annuities are a better option for investors 85 and over. If you purchased a 15-year period certain annuity, your heirs would continue to get your $7,800 payments until the 15 years expired. While that only offers a return of 1.1%, it is still a small return and you pay for the peace of mind you are getting as well. Choosing the cash refund option for your variable annuity ensures that your heirs receive any remaining money left from your initial $100,000 investment should you pass away before receiving all of it.
Although fixed annuity rates are low, fixed annuities that guarantee your capital and offer you a rate of return could be a good option for investors 85 and older. Just make sure that there are no surrender charges or that they are waived in the case of your death. Market value adjusted annuities, while good investments for some, are not recommended for people over 85 by Annuity FYI.
Variable annuities with lifetime income benefit riders are not typically good investments for older people because they don’t pass remaining money on to heirs. In fact, you would only receive $32,500 of your initial investment back if you lived to the average age of 91.5. Most insurance companies don’t even offer lifetime income benefits to people 85 and over because they just aren’t worth it to the investor.
However, variable annuities that have return of premium death benefits can be a good investment for those 85 and older. Heirs are guaranteed to be paid the remaining balance if you die before collecting your $100,000 in benefits. They will receive that amount less any payments you received from the annuity during your lifetime. Even if your account value declines well below that $100,000 because of poor market conditions, you will still be guaranteed a return of your premium to you or your heirs.
Annuity FYI strongly recommends speaking with a financial advisor who is well versed in annuities. You can find one on our website or speak with one of our experts to get you started. Each investor 85 and over has individual needs, but this summary should answer a lot of questions for advisors and investors over 85 looking at annuity products.
Written by Rachel Summit