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|Subject: Combining an annuity with LTC insurance?||Date: 9/7/2013 4:47 AM|
|Author: intercst||Number: 72762 of 75797|
This sounds like inviting a couple of guys in hoodies over to your house to rob you.
One oft-heard response to the annuity puzzle is that retirees fear a SPIA won't pay off if they don't live very long. Another big objection is the loss of liquidity associated with an annuity purchase. What happens if you get really ill, or lightning cracks your roof in half?
Now, that fear is getting a close look in a study by two economists, who attempted to quantify what happens to the value of an immediate annuity when an unexpected health shock occurs.
The economists, Felix Reichling of the Congressional Budget Office and Kent Smetters of the Wharton School of Business, found that health shocks can produce a unique double-whammy for annuity buyers: a sharp decline in life expectancy, which cuts the remaining value of the annuity, and the unmet need for cash to pay for care. They conclude that for risk-averse retirees, or for those with limited retirement assets, the best move is to avoid annuities altogether.
The questions about liquidity and health shocks raised by Reichling and Smetters may show the need for a different type of insurance product, argues Michael Kitces, partner and director of research for Maryland-based Pinnacle Advisory Group. "To me, the paper points to the value of pairing an annuity with a long-term care insurance policy," Kitces says. "A hybrid SPIA and long-term care product could be interesting."
Insurance companies - start your engines.
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