Longevity Annuities in 401(k) Plans

compare annuitiesThis year, 2012, we have heard much noise on annuities making their way into 401(k) platforms.  Just a couple of months ago, a press release that Airline giant, Southwest Airlines Would be Adding Annuities to their $6 billion 401(k) plan.  After 2008, many economists, politicians, 401(k) plan administrators, and most consumers woke up to realize that their 401(k) plans were not only inefficient vehicles for lifetime income, but they are also incredibly susceptible to losing value quickly when most Americans have no idea how to manage their plan.


The great news is that America is now fully aware how inferior today’s retirement plans like 401(k)’s are compared to their retirement predecessor, the pension.  Of course, as our Annuity Think Tank readers know, a pension is a form of an annuity, so it makes perfect sense that annuities are finally making their way into 401(k) plans.


The most recent type of annuity to make its way into 401(k) plans are Longevity Annuities. (see What is a Longevity Annuity).  In simple terms, a longevity annuity is an annuity contract where you deposit a specified amount of money for a contractually guaranteed specific sum of money in the future that will continue to pay for the rest of your life.  For instance, a 60 year old could deposit $100,000 into a longevity annuity through his/her 401(k) and at certain breakpoints in the future (for instance at age 70, age 75, age 80) he or she could elect to turn that annuity portion into a lifetime income.  For letting the insurance carrier hold the money for that deferred period, they will not only give you an internal guaranteed rate of return, but also a lifetime income stream when you are ready.  These longevity annuities are different from the traditional SPIA (single premium immediate annuity) in the fact that you take income later, vs now like you do with a SPIA.


Stay tuned for more 401(k) plans accepting these popular annuities.  We have a suspicion it will be a growing trend.


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One Response to “Longevity Annuities in 401(k) Plans”

  1. David Cohen November 13, 2012 at 3:21 pm #

    A great article.

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