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Worry-free spending

Insurance that allows you to spend without fear after retirement
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Everyone worries sometime or the other about not having enough money saved up for retirement. After retirement, even if you've saved up a decent sum, you aren't able to spend as freely as you'd want to because you don't know how long you're going to live. Social security isn't gauranteed to help, given all the concerns about it.

In steps an insurance firm which offers you the following deal. You go ahead and spend like hell for as long as you like, till your money runs out. No doubt, if you die early, you did well, for you used up all your money doing whatever tickles your fancy. If you don't die as early, that's not good, right? Your stash has evaporated, and there's still a few years you'll have to survive. In steps the friendly insurance firm, and provides you subsistence level money for the rest of you life, as long as you live. You won't be able to carry on with your jetsetting life, but at least you'll live.

What does the company get in return? Whenever you do kick the bucket, whatever moolah you've got left over goes to the company. If you die while you're in the big-spending phase, the company wins. If you die when you're in the receiving-handouts phase, you win (well, sort of). The montly handouts you'll get will be determined by the insurance company based on your age, initial finances, risk factors (of you dying), etc.

sash, Jan 31 2002

Reverse Mortgages http://www.reversemortgage.org/Revmtg.htm
Regarding the product Angel describes as marketed in the United States and Canada [jurist, Jan 31 2002, last modified Oct 04 2004]

[link]






       Last I heard, Insurance companies were in business to make a profit. NOW
thumbwax, Jan 31 2002
  

       There are many finance companies in UK who lend money (paid monthly) to retired home-owners, in return for their house. Essentially, it's a mortgage. They (the finance companies) are hoping (that sounds awful, but you know what I mean) that the borrower dies before they've paid out what the house is worth.
angel, Jan 31 2002
  

       Thanks, Angel, you beat me to the comment, but link provided.
jurist, Jan 31 2002
  

       This seems possible at first, but what does the insurance company get out of it? At best, some fraction of the goods which they've already paid for. Not a good money-making opportunity for them. This may have worked for Faust, but even souls aren't as valuable as they used to be.   

       <off-topic>Personally, I think teaching children about investment from an early age will only encourage their rebellious streak and make them go live on a kibbutz, and a far better way to teach them the importance of money is to drink all their inheritance and die penniless in a gutter.</off-topic>
pottedstu, Jan 31 2002
  

       Ah. Now I get it. This is an insurance against underestimating one's lifespan.   

       People don't like to live on hand-outs, and will therefore pace their own spending; but it seems pointless to die rich, so one starts eating into the reserves.   

       I don't know if it's as uneconomic as pottedstu makes it out to be below. I think it might work.   

       You need one more rule to prevent people who have nothing to sign up for the handouts only - anyone signing up must be rich and materialist enough to be afraid of having their income drop to the handout level. (I'm not sure that the first guarantees the second.)   

       The downside I see is that there may not be that many people who are rich enough to afford this, incompetent enough to spend, yet at the same time worried enough to sign up.   

       [This annotation has changed since DrBob agreed with it.]
jutta, Jan 31 2002
  

       So has this one! <sticks out tongue>   

       What happens if, having spent all your money and become eligible for the insurance company's subsistence payments, you suddenly become wealthier again? What's to stop you giving all your money away to, say, your wife, collecting the insurance company's money, and getting the best of both worlds? Is this policy limited to just the cash that you possess at the time of signing the agreement or does it cover all present and future assets? Is there a monthly payment plan for the premium? What happens if the insurance company goes bust?
DrBob, Jan 31 2002
  

       There's no mention in the description of how you pay the insurance company, other than on death. If that's the only payment, this is uneconomic. If not (and it is like a pension or anti-pension), then it should say how it's paid for. (Like you pay them $1000 a month, they let you spend infinite amounts of money? Huh?)
pottedstu, Jan 31 2002
  

       To have a chance of working the initial rate of spend would have to be constrained, so that there would be an even chance that the insurance company would profit. This is getting close to a normal pension..   

       Here in the UK the government has a minimum income guarantee, so the pension could allow you to spend at a fast rate until say 75, then cast you adrift for the state to worry about.. nobody starves, and you get a good lifestyle for about 10 years of retirement.. after that you are probably too old to enjoy a lot of money anyway.   

       Another thing: If I die before I retire (many do) my estate gets a big lump of cash. Personally, I would like the option of giving this 'benefit' up (so if I die early I lose all) IF I get an enhanced package when I retire. Hard on the kids, but they should fend for themselves by then..
RusNash, Jun 18 2003
  

       Thanks, Dad. Love you too.
snarfyguy, Jun 18 2003
  

       No fun, no fair!   

       You are describing a scheme that is already propagated across North America. Essentially encouraged elderly to borrow against their mortgage equity to carry for retirement income. Problem is, when they die, there is nothing of an estate left for the kids or even your favourite charity.   

       Poo on this idea!
NeMo, Mar 06 2004
  

       Really what you want is, at the moment of death, a celestial insurance man appears, bathed in light, to offer you another twenty years of living in poverty (in exchange for a fee) or a lump sum to take with you to the afterlife.
hippo, Mar 06 2004
  
      
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