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Longevity Risk

photo credit: 401(K) 2013 via photopin cc

The uncertainty of an individual’s lifespan cannot be eliminated.  However, planning to have sufficient monies requires setting realistic expectations of how long retirement will last.   According to the Social Security Commission, the average life expectancy for those still alive at age 65 is 84 for males and 86 for females.  Planning, however, needs to take into consideration living longer than average, or half of retirees could run out of money before they die. So another consideration is the possibility of living longer than average. The data shows that one in four people alive at age 65 will live past age 90 and one in ten will live past 95.

Life Expectancy By Calculator?

To help identify the average life expectancy for a stated age and gender, the Social Security Administration provides a life expectancy calculator.  Estimating life expectancy may begin with a table or calculator, but the next step must take into consideration personal and family health history.  One online calculator, the living to 100 Calculator, takes these personal factors into consideration when creating a life expectancy estimate.  By entering information about your current health, lifestyle habits, and family’s health history, the calculator is able to create a more accurate personal life expectancy estimate.

Planning Against Longevity Risk

It sounds like a fancy strategy, but planning against longevity risk is simply planning to never outlive your resources in retirement. And, there are ways to ensure that never happens. Here are some options:

  • Deferring Social Security benefits
  • Electing life annuity payments from an employer sponsored retirement plan
  • Purchasing a life annuity can create a stream of income
  • Purchasing a deferred income annuity (a life annuity that begins at a later date)
  • Deferred annuities can be purchased with riders
  • Lifetime income is also available through life insurance contracts with a death benefit

Source: FORBES http://www.forbes.com/sites/jamiehopkins/2014/02/03/planning-for-an-uncertain-life-expectancy-in-retirement/

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