The Pros and Cons of Longevity Insurance for Retirees

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What Is Longevity Insurance?

Retirees concerned about outliving their savings might consider longevity insurance. This type of deferred income annuity provides regular “paychecks” if you live beyond a predetermined age, typically 80 or 85, ensuring financial stability in your later years.

How Does Longevity Insurance Work?

Longevity insurance can be purchased with a lump sum or through payments over several years. Once you reach the chosen age, guaranteed payouts begin. This can be particularly beneficial for retirees hesitant to spend their savings due to concerns about future financial needs or market risks.

Pros and Cons of Longevity Insurance

Pros of Longevity Insurance

• Provides peace of mind that you won’t outlive your retirement savings.
• Allows for the addition of a spouse to the policy.
• Enables more freedom to spend retirement savings early, knowing a steady income will start later.
• Offers tax advantages, such as deferred growth sheltered from required minimum distributions.
• Protects savings from market risk.
• Can help fund healthcare needs, such as assisted living.
• Heirs may recover premiums if you die before or during the payout period.

Cons of Longevity Insurance

• Determining future income needs can be challenging.
• The financial health of the insurance company affects payout reliability.
• Fees and expenses can be high.
• Annuities can be complex, with various tax-advantaged options and riders.
• May reduce the amount of money available to your heirs.
• Potential surrender fees or opportunity costs if you end the contract.

Do You Need Longevity Insurance?

Not everyone needs longevity insurance. It may not be necessary if your Social Security benefits, pension, or retirement funds can cover your expenses, or if you believe you won’t live long enough for the payout to be worthwhile. However, it might be beneficial if you’re unsure your money will last past age 80 or 85, or if you’re uncomfortable with market volatility and want a regular paycheck.

The Bottom Line

Longevity insurance can provide financial security and peace of mind for retirees worried about outliving their savings. However, it requires careful consideration of future income needs, inflation, long-term care, and the financial health of the insurance company. Consulting a financial professional can help determine if longevity insurance is the right choice for you.

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