We believe retirement planning should be simpler than most experts make it out to be. Step 3 of our 6-step Retirement Planning Program is to secure guaranteed income.

The Downside of Modern Longevity

Americans are living longer. Modern medicine, changes in diet and lifestyle, and advances in society and technology are all helping more and more of us reach our eighth decade or beyond.

There’s just one problem: once we retire, much of our retirement assets are finite. We only have so much savings and so many investments, and eventually, that money may run out.

Nobody wants to face the prospect of ending their days broke. But unless you are independently wealthy, there is little guarantee that your retirement funds will last as long as you do. What can you do to make sure you’re provided for once the money runs out?

Longevity Insurance: The Insurance We Hope We Need

A longevity annuity, or longevity insurance, is an annuity purchased around retirement age that will cover you once you’re around age 85. You pay into the annuity, often in a large lump sum, and then wait until you reach its payout date, at which point it will provide you with monthly money for your day-to-day expenses, no matter how long that happens to be.

We like to call it a self-funded pension. You can invest up to a quarter of your retirement fund without a tax penalty. But why would someone choose to invest a portion of their retirement fund this way?

The Benefits of Longevity Insurance

If you decide to set up your retirement income in this way, be sure to structure it to cover both you and your spouse, allowing the surviving partner to continue receiving benefits even if the main beneficiary dies.

We also recommend including inflation protection to prevent the erosion of your retirement money’s value.

But if you want, you can add a rider; if you should die before your annuity pays out its original value, the entire investment will return to your estate.

The Last Nest Egg You’ll Ever Need

As we roll through retirement, the largest risk most people face is longevity risk. If this is a concern of yours, consider establishing your own self-funded pension that will guarantee a lifetime income.

Wiley Long is founder and president of Medigap Advisors, and is passionate about helping people navigate the confusing waters of Medicare. He is the author of The Medicare Playbook: Designing Your Successful Health Coverage Strategy, a clear and simple explanation so you can make the most of your Medicare coverage.