Medically underwritten annuities can boost income for those who qualify

Retirement plans focus on boosting the number of participating workers and the percentage of pay being saved, but few prioritize how employees will actually fare financially once in retirement, a new study shows.

The Plan Sponsor Council of America survey of 605 retirement plans found just 31 percent of plans benchmark their success based on income-replacement ratios, which are projections of a worker's retirement income as a percentage of final pay using estimates of future investment returns. More than 90 percent use participation rates.

With guaranteed pensions largely gone, it's up to savers to figure out how much they can safely withdraw from their nest eggs each year without risking running out of money.

Annuities aim to offload some of that risk, but it's important to bring a critical eye to any financial product geared toward the elderly.

As traditional long-term care insurance premiums jumped significantly in the last decade, sales of new stand-alone policies have fallen dramatically, industry trade groups report. That means more people are entering their older years without coverage for nursing home and other types of assisted-living care.

Enter the medically underwritten annuity. These products are for people over 70 who are already in need of medical care and who have a shorter life expectancy than other people their age. Costs vary by age and medical condition, but someone might get up to 50 percent more in monthly income than a healthy person.

Why would anyone with a shorter life expectancy consider annuities? With medical advances, the possibility of outliving assets is still there.

Adult children are buying these policies for their parents, said Maria Tabb, a senior product manager for Genworth, which began offering its Income Assurance Immediate Need Annuity about two years ago. Hersh Stern, an insurance agent and owner of ImmediateAnnuities.com, urges families to realize their loved one may die before annuity returns even the premium paid.

He also suggests comparing any quotes from medically underwritten annuities with traditional single-premium income annuities. "You might be looking at a third more income but your life expectancy is half that" of a healthy person, he said.

That's if you can even qualify for the product, said agent Stan Haithcock.

"Most of the time, clients aren't sick enough" to qualify for higher payouts based on the underwriting, he said. "They're often getting turned down."

Janet Kidd Stewart writes for Tribune Content Agency.