You Can Insure Against Outliving Your Assets in Retirement

Life expectancy continues to increase in the United States. While a male born today can expect to live about 75 years and a female nearly 80, once you reach the age of 65, statistics from the Social Security Administration say you’ll likely surpass those marks. A 65-year-old male can expect to live more than 16 additional years, and a female that age can expect to live almost 20 years more, taking both past age 80. And, once you hit age 75, statistics indicate you’ll make it past age 85.

While we welcome these extra years, they bring with them some challenges, not the least of which is figuring out how to support oneself financially. When you leave the active, full-time work force, what should you do with your retirement savings to ensure that you’ll still have money to pay the bills 20 or even 30 years down the road, assuming longevity is on your side? Some insurers are providing one answer to this question: longevity insurance.

Basically, longevity insurance is a type of annuity that begins to pay a guaranteed monthly income at a later age. You generally pay a single lump-sum premium up-front, say when you retire at age 65, but don’t begin to receive annuity payments until a later age. In the meantime, you live on income from other sources, such as social security and/or a pension, supplemented by money you draw out of your retirement savings.

Knowing that you’ll have a guaranteed source of income when annuity payments kick in alleviates some of the concern that you will outlive your retirement savings. Insurers that offer this product market it as protecting against longevity risk, or insuring against the risk of outliving one’s assets. You also can think of longevity insurance as simplifying retirement income planning: With longevity insurance, you know that at least a portion of your income will be available at a later date, which means you have a known, finite number of years before that over which your retirement savings needs to last.

Consult with your financial advisor or insurance broker for details, and to discuss whether longevity insurance should be a part of your retirement income planning.

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