Hmmm. no Edit key...
worth quoting:
IN SUM
The creation of a stand-alone ruin contingent life annuity (RCLA) would be a triumph of
insurance and financial engineering. On the one hand it is a type of long-term equity put
option, but it also provides true longevity insurance. Indeed, it is currently embedded
within an assortment of GLiBs on variable annuities, but we believe they should be
given a separate life of their own and sold on a stand alone basis.
Another use of such a concept product is that it provides us with a mark-to-market (or at
least mark-to-model) value for one’s retirement income plan. If a 7% spending rate is
truly unsustainable, then the cost of 7% RCLA would tell us by how much – exactly.
If mom and dad are spending too much, the relevant x% RCLA value would provide the
beneficiaries with a rough (average) estimate of what it will cost them – in value terms –
to cover their anticipated spending if and when they run out. The children
might want to set this sum of money aside now, in a risk free saving account, to cover
the cost of a life annuity if-and-when mom and dad ever run out of money.
At the very least, the creation of such products would enable retirees and their financial
advisor to put a market price – as opposed to just simulation values -- on the risks they
are running by spending too much, not investing appropriately or simply living too long.
In this case, market prices would function as economic signals or even warning signs.
