The Social Security Administration continues to warn that its retirement program’s trust fund reserves will be depleted by 2035, resulting in an annual benefit reduction of about 24%. That is without factoring in the pandemic and a proposed payroll tax cut that could move the date even closer.

The possibility of broken promises with Social Security is troubling for the millions of Americans who are depending on Social Security benefits as a primary source of retirement income. But David Duley says that worry can be eased with his new breed of insurance products.

Duley, founder and CEO of Atlanta-based PlanGap, has introduced the PlanGap Annuity, a new class of financial solutions called retirement insurance. The company describes the newfangled vehicles as a suite of “trigger-based” annuity and life insurance products designed to protect Americans from potential retirement shortfalls due to possible systemic failures of guaranteed income sources like Social Security and pensions.

PlanGap has been backed by retirement industry heavyweights including Tim Hill at the actuarial firm Milliman; Paul Atkins, former commissioner of the Securities and Exchange Commission and the chief executive of the financial and consulting firm Patomak Global Partners; and risk management expert Dr. Gordon Woo of RMS.

The PlanGap Annuity, which was approved in April by the Insurance Interstate Compact, is built on a five-year guaranteed annuity structure that has two features. The first feature, Duley explained, is a bonus payout in the event that a Social Security recipient’s benefit is reduced.

The bonus is a percent of the base premium that the policyholder initially put into the annuity. For example, if you put in $100,000, the PlanGap Annuity can grow up to 30% of that value. “So let’s say 2035 rolls around and that person who owns that amount Social Security gets cut. That annuity would pay them an extra $30,000 [or $6,000] spread out over five years to help offset the reduction of Social Security from the government,” Duley explained.

The second feature is the Flexibility Bonus that takes into account the possibility that Social Security benefits don't get slashed. Duley explained that if the benefits are not reduced and the customer no longer feels the need for the insurance, she would redeem an additional 1.5% of account value bonus upon surrendering the policy, or she can continue on and earn additional bonus. In year 10, that bonus would be 3% and 4.5% in year 15.

“We didn’t want to get people locked into something long term because the nature of Social Security and, often some annuities, are longer term lock-ins,” he said. “We wanted to give people flexibility to say, ‘Hey, I want the power to hedge against this risk, but if they fix it, I want to get out of it’,” he said.

While the product is for anyone who pays into Social Security, Duley concedes that the first annuity might not be for everyone. “Our product roadmap as we develop more and more products, we will have a full gamut of products accessible to basically any income level and level of protection,” he said.

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