How Does It Work? A Longevity Pension Fund Theoretical Case Study
29 May 2021.
Wondering how you'll have income for life with the Longevity Pension Fund? Not sure exactly how it all works? No problem.
Let’s meet Nicole.
Nicole is 66 years old and after 40 years in the hospitality industry as a pastry chef she has finally decided to hang up the oven mitts.
She invests $100,000 into the Longevity Pension Fund to begin her retirement journey. She’s now in the Decumulation Class and is put into a cohort with other investors around her age.
Nicole begins to receive monthly income payments totalling $6,150 annually. This marks the beginning of her lifetime income stream.
She knows that if she ever needs to redeem, she has access to her unpaid capital—the $100,000 that she invested, less the total income payments she has received to date. She rests easy knowing that this same amount is available to her estate if she passes away.
Years pass and the number of investors in the cohort decreases, as some people pass away and others choose to redeem. The returns generated from those exited investors remain in the fund, and as a result, when Nicole turns 73, her monthly income from the fund begins to increase.
Nicole celebrates her 75th birthday on the beach in Bali, margarita in hand. Her biggest worry isn’t if she’ll have enough money to last, but instead whether that monkey is eyeing her Satay.
All this time, Nicole recalls that income payments are set based on the fund’s performance, as well as the mortality experience and redemptions of her cohort. This means that while her payments are expected to increase over time, they may go up or down. Nicole plans and spends accordingly and knows this trip to Bali is the first of many.
This story is for illustrative purposes only. Distributions and returns for investment funds may fluctuate and are never guaranteed. This should not be considered investment advice or financial advice, and is not tailored to the needs or circumstances of any investor. Always reach out to professional advisors to consider your unique circumstances prior to investing.
The Longevity Pension Fund is designed to provide income for life, with an initial targeted annual income payment of 6.15% for a 65-year-old individual. The payments are designed to increase over the long term; however, they may go up or down to reflect the performance of the underlying investments and other factors such as mortality experience of the cohort. A traditional lifetime income solution could include a lifetime income annuity with a 10-year guarantee period, which has on average a fixed starting payment of 5.76% for 65-year-old males (Source: Cannex, May 19, 2021).
Forward-looking statements are not guaranteed.
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