When planning for retirement, there’s one variable you can’t predict–how long you’ll live. Everybody wants to live a long, healthy life, but what happens if you outlive your retirement savings? It’s important to have a plan that will allow you to enjoy your retirement and not worry about running out of money.
Why Longevity Insurance?
Longevity insurance (sometimes called a deferred income annuity) is a plan that guarantees you’ll always have income in retirement, no matter how long you live. Investors typically purchase a longevity annuity near retirement age. After paying into the annuity, often in one lump sum, you wait until the payout date, then receive monthly payments for as long as you live.
If you’ve already put away money into a 401(k) or IRA, you can use some of that money–up to 25% for a maximum total of $125,000–to purchase a longevity annuity. In order to avoid a tax penalty, you just have to start collecting payments by the age of 85.
The benefits of longevity insurance are obvious. They provide security in case you live longer than planned or have unexpected expenses. They’re also a good way to compliment your other source of guaranteed income, Social Security.
How Much Income Do You Need?
This is the most important number you need to calculate. Once you have a pretty good idea of what your monthly spending will be, you can then compare that to your current estimated income.
Add up any pensions you have, and get an estimate of your monthly social security benefit. (You can do this by going to the Social Security Administration’s retirement estimator at https://www.ssa.gov/benefits/retirement/estimator.html.)
Also include any other ongoing sources of income you may have, like rental payments, land leases, mineral rights, or other income you can count on. Then see if that amount meets your income needs. If not, you may want to structure some of your assets in a way that will pay a lifetime income.
If you’d like more information, call us and ask to speak with our retirement income planning specialist, Kevin Conroy.
Wiley Long is the president of ColoHealth, and has been in the health insurance industry since 1987. He received his master’s degree in nutrition and exercise science at Colorado State University, and is passionate about individual healthcare freedom. Read more about Wiley on his Bio page.