Never Outlive Your Savings with Longevity Annuities

The Centers for Disease Control and Prevention estimates that the average 65-year-old will live at least another 20 years, which is six years more than what life expectancy was in 1950. While this is great news, it does present a financial challenge – how to ensure that your retirement savings will last a lifetime.

Some seniors address the money issue by working past age 65 or delaying Social Security. Others are turning to longevity annuities.

A longevity annuity, also referred to as a deferred income annuity, is a contract between an individual and an annuity provider. The individual, upon payment of a lump sum, receives guaranteed monthly income for life. Payments usually start between ages 75 and 85.

Many retirement experts tout longevity annuities as one of the best financial deals for seniors who are worried about outliving their savings, but that doesn’t mean longevity annuities are popular. According to LIMRA, an insurance industry group, deferred income annuities accounted for only $1.7 billion of the $219 billion in total annuity sales in 2020. In comparison, variable annuities accounted for almost $99 billion of sales last year.

An important hurdle is that many investors are reluctant to hand over a large sum of money that may not pay any benefits if the policy holder doesn’t live long enough. Many people prefer instead to retain control over their money by putting their money in other investments. However, if an individual does live a long life, a longevity annuity can pay off handsomely.