Protect the Lifetime Income Value of Your Assets with Longevity Insurance

Dianne Nicholson |

The 2015 Retirement Confidence Survey revealed that only 24% of today’s workers are very confident that they will have enough money to live comfortably throughout their retirement years. As the new reality of longer life expectancies and retirement plan shortfalls set in among pre-retirees, the concern over income longevity has become paramount in their minds.  So, the recent resurgence of annuities among financial advisors and retirees is not surprising, the problem is that very few advisors, let alone retirees, truly understand them.

The purpose of annuities as longevity insurance is to protect the lifetime income value of your assets; yet, in today’s highly competitive annuity marketplace, advisors and retirees tend to focus on annuity products that produce the highest income payout in the early years, which ignores the much greater concern of outliving one’s assets.  With the stakes so high, annuity products need to be evaluated for their overall capacity to protect the lifetime income value of your assets rather than their gimmicky features.

It’s not your Father’s Retirement Plan

Today, retirees face a completely different set of financial challenges than past generations. It’s becoming more common for people to carry mortgages into retirement, an increasing number of retirees are still paying down student debt- either their own or their children’s, health care costs have exploded in the last decade, and, because we are living longer, those costs will continue to eat a growing portion of our retirement budgets.

The traditional notion that retirees will only need 70% of their working income in retirement is not only outdated, it can be a dangerously misguided assumption. Many of today’s retirees can expect their retirement income needs to exceed their pre-retirement needs.

The Greatest Risk to Your Financial Security

Compounding these challenges is longevity risk, which, frankly, wasn’t as much of a concern for prior generations. While most people may understand that they can expect to live longer, few realize that life longevity is constantly expanding, meaning that the older you get, the greater your life expectancy.

Today, there is a one in four chance that one of the spouses of a 65-year old couple will celebrate their 95th birthday, and it is more than likely to be the wife. Unfortunately, few couples fully grasp the enormity of this risk.

The risk of longevity is further compounded by the risk of inflation, even at an average inflation rate of 3%, the cost of living will double in 20 years, which could put many retirees’ lifestyle in jeopardy. Any resurgence of inflation to the levels seen in past decades could have a devastating impact on the lifetime income value of your assets.

Focus on Lifetime Income Value

Unquestionably, we are living longer and the only uncertainty is just how long. Lifetime financial security shouldn’t be left to chance. At no other time has it been so important to determine and how much income you will need in retirement, and then to analyze how much you can expect to receive.

Sound retirement income planning needs to look well beyond the first ten years, and an income annuity needs to protect the lifetime income value of your assets beyond your life expectancy.

Before investing in an income annuity, speak with a qualified advisor who has a deep understanding of these products.  A qualified and trusted advisor can help you better understand your needs and determine if an annuity is a suitable choice.   

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2024 Advisor Websites.