Insuring Longevity

The Treasury Department’s deputy assistant secretary for retirement and health policy, J. Mark Iwry, has been tackling the issue of funding longevity.

As reported by Tara Siegel Bernard in the New York Times in July, “New tax rules will make it possible for workers to buy a type of annuity often called longevity insurance inside their retirement plans. The annuity aims to protect people from exhausting their savings in their later years.

“Longevity insurance is actually a deferred-income annuity, in which a person pays a lump sum premium to an insurer in exchange for a guaranteed lifetime income stream that begins several years later — perhaps well into the person’s 70s or 80s. Until now, these annuities could not be widely used in 401(k) retirement plans and individual retirement accounts because those plans require account holders to begin withdrawals — known as required minimum distributions — at age 70 ½.”

But  the Treasury Department recently announced that, Bernard writes, “Workers can now satisfy those rules if they use a portion of their retirement money to buy the annuities and begin collecting the income by age 85. The move is part of the Obama administration’s broader effort to develop ways to provide Americans with more security in retirement.”

“As boomers approach retirement and life expectancies increase, longevity income annuities can be an important option to help Americans plan for retirement and ensure they have a regular stream of income for as long as they can live,”  Iwry, told Bernard. The new rules take effect immediately.