Should You Consider a Longevity Annuity?


Not all annuities are created equal, just as no two retirees are alike. 

But, if your main concern is running out of money in retirement, a longevity annuity can make a lot of sense. That’s because, in exchange for a big upfront payment, you’ll get regular (often monthly) payments from your annuity holder for the rest of your life. That’s not a bad way to ensure some peace of mind in retirement.

What is a longevity annuity?

As mentioned, in exchange for a lump sum premium payment at the start you’ll get a regular paycheck for the rest of your life, making budgeting more regular in retirement and more in line with what you’re likely doing right now as you continue to work.

It’s a way to turn your retirement portfolio into guaranteed income for life. And it doesn’t need to be all or nothing. Many people will convert a portion of their retirement savings into an annuity as a way to set a baseline for their income going forward. A smaller monthly payment that’s enough to cover your basic living expenses (assuming rent or mortgage, food, etc will continue at similar rates) makes it a lot easier to make decisions about how you spend your retirement and what you can and cannot do.

It’s a guarantee that you won’t outlive your money.

Is a longevity annuity a good idea?

On the good side, these types of annuities are popular because they take a good bit of the guesswork out of retirement planning. Knowing that your bills will be covered for life takes a lot of the pressure off and makes it easier to plan for the rest of your retirement.

That’s peace of mind that you can literally buy.

As a bonus, it’s possible to live longer than your annuity, meaning you get back everything you put into it and your insurance company continues to send you monthly payments. Not only is that free money, but all of this is taxed as if it were an IRA, meaning you don’t have to pay taxes as you take money out.

It’s a nice way to simplify your retirement planning, and you can even set up a joint account so that your spouse can receive similar benefits even after you pass away.

What’s the downside? 

Unlike typical retirement savings, annuities of all types are not liquid securities. You can’t go out and sell them or otherwise withdraw cash value from them if you change your mind. You’re stuck with whatever monthly payment you agreed to when you set up the annuity and you can change that even if you need to later on.

This is both good and bad. While it can be nerve wracking to lose access to your savings, this effectively locks in your income to ensure that you never run out of money. That’s why choosing a longevity annuity is a very personal decision that has to take into account your full retirement picture as well as what you hope to achieve in retirement. There is no right or wrong answer here.


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