Legacy Savings Organizations: Beating Deferred Annuity Insurance Benefits by Over 50%; Practical Plan for Funding Extra-Long Retirement

Abstract

Longevity insurance pays cash benefits to an insured individual who attains a defined age. Thereafter, benefits may continue throughout the insured’s life. For anyone concerned that living too long might become an economic hardship, longevity insurance, at the right price, can make sense. Yet, due to cost, few people purchase it. Longevity insurance’s high price reflects three factors: 1) lingering effects of a 1905 government investigation which pushed the insurance industry to bundle costly, counterproductive features with its longevity products, 2) the corporate structure of the underwriting business which shoulders risk, requires remuneration and itself interposes an additional risk factor (potential insurer default) and, 3) most importantly, inequitable taxation. A legacy savings organization (LSO) is an organizational structure that enables a group of individuals to self-insure far more cost effectively and at lower risk than through a commercial insurer. For instance, through such an organization, a typical 65 year old man, in return for a $100,000 payment placed in risk-free Treasury securities, could expect to receive beginning at age 85 roughly a $50,000 annual, after tax benefit, easily 50% more than most commercial insurers now offer. Today, commercial insurers are engines that turn the principal of one insured into the taxable income of another. An LSO avoids this onerous tax treatment. This report briefly reviews current, commercially available longevity insurance products, describes the construction and delivery of a more attractive alternative through LSO’s and briefly relates the history of similar alternatives.