Solution 1: Buying Retirement Annuity
The attractiveness of annuities changes over time. When current interest rates are lower, payouts decrease, and they increase at higher rates because insurance companies can earn a higher return on contract holder funds. This is because insurance companies invest the bulk of their capital in bonds and cash. Therefore, when bond yields rise, insurance companies can afford to raise payouts for new buyers. For example, a 70-year-old man who invested $100,000 in a fixed annuity in 2019 would be receiving a monthly income of $600 for his entire life. Recently, $100,000 yield more than $700 monthly for a 70-year-old male annuity holder.
There are currently no annuities, which payouts are tied to the consumer price index; and annuity buyers who choose hedge against inflation and pay a significant price for it. A $100,000 annuity for a 70-year-old man, adjusted annually for inflation at 3%, would yield about $540 per month, versus $700 per month without inflation adjustment.
Purchasing long-term care insurance
Just as a high return allows insurance companies to offer more attractive annuity payouts, they can also improve the pricing of long-term care insurance. An ultra-low return for two decades before sharply higher rates in 2021, coupled with unexpectedly high claim payouts, have led insurers to raise long-term care insurance premiums for both new buyers and those with existing policies. Many insurers exited the market, and by 2023, only six companies continued to provide pure long-term care insurance.
A higher return has not yet led to lower premiums for pure long-term care insurance policies; on the contrary, rates have grown. For example, a 55-year-old man purchasing $165,000 in long-term care insurance would pay an annual premium of $1,710 in 2020. In 2024, the premium on the same policy for the same person would be $2,075.
Whether to save money in pension funds?
The value of saving has long been considered one of the most reliable guidelines in retirement planning.
Source: https://www.morningstar.com/personal-finance/how-higher-yields-affect-3-key-retirement-decisions
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