Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
i am not so sure anyone in particular is a target for it.
it’s just one of those products that are there that someone will just buy
Of course there is a target market:
One needs to be spare 100 or 200K from their portfolio towards payouts beginning 15-20 years - which risk of it amounting to nothing in case early departure. The assets, therefore, need to be high enough.
Assets need to be low enough for the payouts to be material.
Health status and longevity history in the family is a factor.
Finally, legacy to children etc. is, ideally, a non-consideration. At the very least, it shouldn't be a significant consideration.
So yes - there is a target market and it is narrow.
PS: I do find characterizations such as "too much money to know what to do with" (MJ - not yours) unnecessarily condescending. If you think that a product isn't interesting to you doesn't mean that people to whom it might be interesting are somehow stupid - have too much money than they know what to do with. And, if a product doesn't interest you, it isn't exactly necessary to post any, let along many, comments on it.
If one bothers to read the article before commenting, they'd read real life vignettes of thoughtful people who chose to buy such an instrument after some thought, shared their reasoning and definitely do not fit the "too much money to know what to do with" categorization.
it is not likely that someone with a high amount of invested assets is going to be interested in a qlac
it’s more those who are short a well funded retirement and so instead of planning to 90 or 95 they plan with their asset to 80-85 then let the qlac pay them ..if they die to early and forfeit it , oh well
Taking excerpt from what MJ quoted from Kitces in #2 above:
"Ultimately, this doesn’t mean that the longevity annuity (or a QLAC inside an IRA) is a bad deal. The ability to accumulate mortality credits still means it can be very effective as a fixed income alternative for those who fear they may not have enough money to fund a retirement well beyond their life expectancy. And if retiree intends to spend all of his/her assets anyway, and the only available dollars for retirement are held in an IRA or other retirement account, the QLAC is an effective means to engage in such a strategy.
That's quite close to how I see it.
Potential strategy to cover fixed income part of the retirement portfolio
Assets already in retirement account
Long-term care expenses escalate / become typically become significant in the 80s. Kitces doesn't mention it but it is simply a logical observation.
I am considering it but we don't really meet Kitces criteria very well in several important ways:
Too much assets for it to be material
Have an excellent LTC insurance anyway - though our financial adviser suggests dropping it as we, in his opinion, don't need it.
But, some of considerations are applicable:
200k isn't a big enough portion of our portfolio and we can spare it for this purpose.
No descendants or value on legacy. So, if we die before the payments start or aren't alive long enough to be a good choice - we aren't around to regret it.
High equity allocation in the portfolio and no plans to change that. So, if 200K buys noteworthy fixed income late in life for downside/longevity coverage, it seems like an OK proposition.
The main driver: We have retirement assets that are designated to be retirement annuities (by the employers). I am not entirely certain of the limitations around them; they cannot be rolled over into an IRA. I believe, at some point, they might need to be converted into SPIA or QLAC or something else of that sort. And, we'd anyway want to greater control over income before RMDs to exercise some control over the highest IRMAA bracket applicability. That's the scenario where I plan to consider it.
US statistics = Percent of US Population 65 and older is 16.8%
Percent of US Population 75 and older is 6.7%
Percent of US Population 85 and older is 1.8%
100+ is .03%
Very old age is not a super huge issue for the majority of people. You can see the math. We drop like flies - LOL.
My two grandmothers lived well into their 90's (one had 15 children and the other had 12 children). None of their combined 27 children lived past 80; 2 lived up until just hitting 80 and croaked. My sister tells me that neither of my grandmothers ever smoked or drank. None of my immediate family has hit 80 yet (we're at 78 with the oldest; the oldest and richest actually).
Statistics are always about interpretation. Baby boomers are generally more healthy and have had better medical care than those who are in the over age 85 category. The over age 85 category were generally born in during the Great Depression and lived with rationing during their formative years during WWII. The over 75 and over 85 cohort will be growing as the Baby Boomers age and are healthy. The older population is growing much faster than the total population.
The probability that a woman aged 75 in average health makes it to age 90 is almost 50%.
The probability that a woman aged 85 in average health makes it to age 95 is almost 30%.
If you are a couple, the probability that one of you will survive to a ripe old age is higher than the probability either of you will live that long.
US statistics = Percent of US Population 65 and older is 16.8%
Percent of US Population 75 and older is 6.7%
Percent of US Population 85 and older is 1.8%
100+ is .03%
Very old age is not a super huge issue for the majority of people. You can see the math. We drop like flies - LOL.
My two grandmothers lived well into their 90's (one had 15 children and the other had 12 children). None of their combined 27 children lived past 80; 2 lived up until just hitting 80 and croaked. My sister tells me that neither of my grandmothers ever smoked or drank. None of my immediate family has hit 80 yet (we're at 78 with the oldest; the oldest and richest actually).
The independent statistics need to be looked at in context. Based on the statistics in your posted-
Conditional probability of a 65-year old to live to 85 or more = Probability of person to live 85 years or more divided by probability for a person to live to 65 or more. In other words, 1.8/16.8 = 10.7%. [This follows from Bayes theorem - which is a fundamental building block of probability theory.]
Conditional probability of a 85-year old to live to 100 or more = Probability of person to live 100 years or more divided by probability for a person to live to 85 or more. In other words 0.03/1.8 = 1.7%
And, this is before sex is taken into account; the numbers for women are different from men. And, as Lillie767 rightly points out, there are medical advancements that suggest lag in numbers.
This is a period life expectancy table from the SSA. The average life expectancy of a 65 year old male is 16.9 years. For a 65 y.o woman, it is 19.7. For a 75 y.o male, it is 10.5 years. For a 75 y.o. female, it is 12.3.
There were a lot more Baby Boomers born than people born during the Great Depression.
You’re comparing apples to oranges when looking at how many people are alive at age 65 and at age 85.
If there were 2.5 million people born 85 years ago and they are all still alive and
If there were 5 million people born 65 years ago and they are all still alive
Dividing the 2.5 million by 5 million and getting 50% doesn’t mean that there is only a 50% chance that a 65 year old will live until age 85.
You are indeed right! I wasn’t thinking of difference in the starting point of 85 year olds vs 65. Thank you for pointing it out.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
