How To Address The Concern of Outliving Your Retirement Savings

One of the worst nightmares for an investor is to outlive his/her retirement savings. However, there is a solution to this concern through the purchase of a longevity insurance product. A "Longevity Insurance" provides guaranteed income typically starting after you turn 85, in exchange for an initial investment made some 20 years earlier. Payouts are fixed and cover you and your spouse for as long as you live. With some variations of this product, you can also opt for a death benefit, which guarantees that your account will hold a certain value that can be paid out to your heirs if you die before the payout age.

One of the main concerns of many individuals approaching the retirement age is the valuation of their current retirement savings and how to catch up. One solution is to increase the risk to and exposed your retirement account to equities in order to bring enough growth in the portfolios. However, this can come at a costly price. One solution to consider is a longevity insurance product. These longevity insurance products are effective in combination with an investment strategy. With a guaranteed income starting at a predetermined point in time, you'll basically take the biggest unknown out of your retirement-planning strategy; "how long your money should last?". You could be more aggressive with your investments and fine-tune the size of your withdrawals without the fear of running out of money.

Recently Mr. Peng Chen, Morningstar’s president of the investment management division, reported the following:

1. many investors do not estimate how long they will live and end up shorthanded on retirement funds.

2. people who are overly optimistic about how long they will live may have a too-frugal existence in retirement.

3. roughly half of retirees live longer than their life expectancy.

4. financial markets are far more volatile than many financial planners account for, and

5. retiree’s exposure to stocks and bonds can put their retirement savings at risk.

One alternative is to combine a traditional product like a mutual fund in combination with a longevity insurance product. As an investor you should consider when saving for your retirement the following:

1. age

2. financial market risk tolerance

3. retirement expenses

4. longevity, and

5. bequest goals

If you're someone who is concerned with the possibilities of outliving your savings, you may want to consider longevity insurance. However, this must be done with careful analysis of the risks. I strongly suggest that you meet with your financial advisors before you make a decision to purchase this type of product. Finally, consider the following final notes:

1. longevity insurance products are not for everyone and should be carefully reviewed before you sign any documents to ensure that they meet your specific needs, and

2. when choosing this type of insurance product, you're buying income that that will start in for 20 years or more. Therefore, make sure that company being considered has a good reputation and solid financials. You can check a company's credit rating with services like Standard & Poor's and A.M. Best.