Economist Tom Hegna is well respected in the financial industry. He works hard to inform people about longevity risk and how it can impact everyone’s financial future. In LifeHealthPro’s “We have to take longevity risk off the table,” Daniel Williams wrote about a conversation he had with Mr. Hegna. As we live long lives, we are going to feel the impact of long term care costs, stock market declines and the potential of running out of money. Mr. Hegna says that “longevity risk is the number one risk in retirement” and that “we have to take longevity risk off the table”. He certainly isn’t trying to scare anyone in his speeches, but is simply trying to help ensure that more Americans prepare for retirement in a way that seeks to eliminate longevity risk.
Three ways to take that longevity risk off the table are with Social Security, pensions and annuity products. Social Security is great, but you might not get enough to cover all of your monthly expenses in retirement. And while many people are confident that Social Security is secure, others worry that it won’t be around as long as we live. Pensions are one of the perfect retirement plans, but they are rapidly disappearing as a benefit given by employers. Annuities are products that anyone can buy to help them eliminate longevity risk. Despite the fact that there are naysayers saying that annuities are bad, they are a very useful product in many retirement plans. Mr. Hegna expressed frustration with people like Suze Orman and Dave Ramsey who speak vehemently against annuity products. He says that the examples they always use are those of variable annuities that have high withdrawal rates. Not all annuities are created equal.
One of the biggest problems currently facing the annuity industry is that of perception. Mr. Hegna says that industry leaders need to use math and science in order to overcome this problem. In studies done by Nobel Prize winners, they all point to annuities as the way to guarantee lifetime income. The accumulation of wealth is certainly important for a secure retirement. But that seems to be where everyone’s focus remains. Creating income is the real issue and the one that needs to be addressed systemically. Mr. Hegna believes that even with the shift to fewer workers putting money in and more retirees taking money from Social Security, the system will survive. But with the near extinct pension program, and especially a potential overpromise related to government employee pensions, annuities are more important than ever. Speak with an expert to see how annuities can help you eliminate longevity risk in your financial planning.