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Put Life Insurance in Your Annuity Practice with the Retirement Alpha!


Many people think that success in retirement is based on the balance in their IRA or 401(k). The premise goes that the amount of a person’s savings is what determines the success of their retirement. While I agree that having a sizable portfolio is vital, what your clients do with the money so they get the most out of it is more important.

In the months I spent researching my book Paychecks and Playchecks, I found an extraordinary FRC whitepaper that was done for New York Life in 2010. It said “Income Annuities offer features others can’t – high cash flow uncorrelated to market returns; retirement alpha in the form of mortality credits, which only life insurance companies can manufacture; longevity hedging and liquidity features.”

Although I had heard of “alpha” before, I had never heard of “retirement alpha.” The light bulb instantly went on! Just as money managers design a portfolio that provides something extra (Alpha) beyond normal market returns, income annuities and life insurance offer that extra something with mortality credits (Retirement Alpha)!Mortality credits are really the “secret sauce” of the lifetime income annuity. Because only life insurance companies offer mortality credits, they are the only ones who can produce this incredible form of Alpha. There is no doubt many, if not all, of your older clients can benefit in some way from the retirement alpha provided by mortality credits.

Mortality credits are really the “secret sauce” of the lifetime income annuity. An insurance company uses mortality credits in combination with principal and interest to provide policy holders with high payout rates. Quite simply, they are an extra amount from the risk pool that basically provides a financial reward to your clients for living longer. By using this risk pooling, the insurance company subsidizes those who live longer with the capital of those who die earlier. A more accurate definition may be longevity credits (coined by PhD Moshe Milevsky).

When explaining this concept to prospects and clients, some really sharp individuals may start to worry. People are living longer and longer every day. One century ago, life expectancy for men and women was around age 50. Now, if you take a married 65-year-old couple, there is a 50% chance of one spouse living to the age of 92 and a 25% chance of one living to 97. With people living so much longer, how can insurance companies continue to afford paying annuity policy holders?

This is when you explain, “The risk when an insurance company sells a lifetime income annuity is that the policy holder lives a really long time. By taking advantage of mortality credits on both sides of the equation, clients can achieve true retirement alpha!The risk when they sell a life insurance policy is that they die too soon. Because insurance companies are on both sides of the risk, they can neutralize longevity risk to themselves and to their clients!”

So, how can clients use this knowledge to maximize their retirement alpha? When you ask clients how much money they want to leave to their children, many retirees will say, “Well, I guess I’ll leave whatever is left over when I die…” The people in this group all too often end up living a diminished retirement because they want to make sure they have enough money to leave as a legacy. They put off purchasing the new boat, just in case, and joining the country club, just in case, and end up living what I call a “just-in-case retirement.”

It doesn’t have to be this way! A far better option is to decide up front how much to leave to the kids. Then for PENNIES on the dollar, use life insurance to provide the kids’ legacy, both income and estate tax-free. Your clients get the leverage of mortality credits offered by the life insurance policy. Then, they can purchase guaranteed lifetime income with an annuity – receiving DOLLARS on their pennies – again from the leverage of mortality credits.

By taking advantage of mortality credits on both sides of the equation, clients can achieve true retirement alpha! They receive a worry-free retirement paycheck for the rest of their life from the lifetime income annuity. They remove longevity risk which is the #1 retirement risk because it multiplies other risks, such as inflation risk, market risk, and withdrawal rate risk. And their life insurance policy provides people the license to live their dream retirement knowing that they have already taken care of their children or grand-children.

If you ask 50 different advisors “what’s the best way to retire?” you’ll get 50 different opinions. But according to experts who have studied these topics in depth, such as Dr. David Babbel of the Wharton School, and Dr. Moshe Milevsky of York University, the math and the science are clear! Because no one can tell you exactly how long you are going to live, you cannot retire optimally without some form of mortality credits.

Tom Hegna Tom Hegna, CLU, ChFC, CASL, is an author, speaker and economist and host of a popular public television show. As a former Fortune 100 senior executive, Tom has dedicated his entire career to helping retirees obtain a “happily ever after” retirement. He has been featured on FoxBusiness, American College Wealth Channel Magazine, Round the Table, Advisor Today and GAMA Magazine. Tom is also a retired U.S. Army Reserves Lieutenant Colonel. He currently lives in Arizona with his wife and children. For more information on Tom Hegna visit

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