Charitable Gift Annuitants Really Do Live Longer
"There are many stories of persons in receipt of annuities living to a great age, and an old saying goes: 'annuitants never die,'" stated The Adjuster insurance journal more than a century ago. While much has changed about annuities since then—and in particular charitable gift annuities—the purported long life of annuitants is more than a cause for wonder among planned giving officers. It's an absolute fact with far-reaching implications.
The Adjuster went on to state in its issue of September 1906: "It is, indeed, a literal fact that annuitants live considerably longer …" That is still true: Depending on one's age at the time of the annuity, annuitants on the average live 2-5 years longer than the general population, according to actuarial tables from the Social Security Administration and the Society of Actuaries. And that does have an impact on CGA rates.
Why do annuitants live longer?
The humorous speculation is that annuitants "refuse" to die because they know there is a check in the mail. But there are real reasons.
"Before purchasing an annuity which is to cease at death, one is very apt to make certain he is in sound health and likely to live for many years," wrote The Adjuster in its article. That self-selection is the crux of the cause. "Anyone who knows his or her days are numbered is not likely to buy a life annuity," wrote G. A. Mackenzie of the International Monetary Fund in 2002.
Another reason is that most annuitants are wealthier than the general population, and wealthier people tend to live longer because they can afford more expensive medical care.
A third possible reason is that annuitants may be more risk-averse and thus maintain their health longer. "It may be that prospective annuitants are cautious and avoid risky pursuits like stock car driving and hang gliding," speculated Mackenzie.
They are living even longer
According to statistics from the World Health Organization, the life expectancy of males worldwide is increasing by about two years per decade—from 72 in 1990 to 74 in 2000 to 76 in 2011. Females, who statistically live longer than males, are extending life by about one year per decade: 79 in 1990 to 80 a decade later to 81 in 2011.
In this country a male who retired on his 65th birthday in December 2013 has a life expectancy of 84, and a female with the same birthday has a life expectancy of 86 1/2, according to the Social Security Administration.
Gift annuitants live longest of all
The American Council on Gift Annuities has conducted a mortality study comparing actual mortality rates of gift annuitants with the mortality rates that would be expected from the annuity tables established by the Society of Actuaries. Gift annuitants experienced lower mortality rates, living longer than their commercial counterparts.
What the ACGA does about it
The ACGA study found it could compensate for the extended longevity of gift annuitants by setting its suggested rates using an actuarial table that makes everyone female and one year younger than their actual age. In other words, the CGA rate for a 65-year-old male is figured as if he were a 64-year-old female (with a longer life expectancy).
That lowers the CGA rates a bit and protects charities from an annuity losing too much of its value during the gift annuitant's longer life. The goal is for the residuum (the amount of the original contribution remaining at the death of the annuitant) to be at least 50 percent.
The joy of giving
Charitable gift annuitants frequently talk about the good feelings generated by a gift that also supplements their income and provides peace of mind. As The Adjuster so eloquently stated all those years ago:
"The worry of providing for one's daily necessities, the trials and vexations of a business life, the fear of coming to want, the physical and mental strain incident to overwork—from these and many similar cares the annuitant is free. His immediate wants are provided for; his future is secure; nothing disturbs the serenity of his daily life.
"Why should he not live on indefinitely?"
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