Annuities Help Protect Against Longevity Risk

by James Nguyen
annuities protect against longevity - blog post

Every day, technology brings innovation across different areas such as communication, energy, medical, and more. We see it on the news across television, computers, and our social media feeds.

These advances are reshaping society in how we function and how we live, which radically improves our standards of living. In this age, retirees face a new dilemma.

The ‘Living’ Issue

The good news? We’re living longer. The bad news? We’re at greater risk for outliving our retirement savings.

The number of Americans retiring daily has nearly doubled since the year 2000 with roughly 10,000 people retiring each day. Longevity risk isn’t just a risk, but a risk multiplier of all the other risks. An aging population with an increasing life expectancy introduces key drivers of the need to address this growing crisis include:

  • Uncertainty of government benefits. Our system is projected to pay out more in benefits than it takes in as more baby boomers retire daily.
  • Rise of healthcare costs. Healthcare spending is projected to grow at an average rate of 5.5% from 2018 to 2027.
  • Economic volatility. The uncertainty of the stock market is constant, yet most of our retirement savings sit in its unpredictable clutches.
two blue chairs on a beach retirement

Related: Tom Hegna: How Retirement Planning is Changing

In light of these factors, retirees are increasingly responsible for seeking other avenues for generating their own income, and annuities may help mitigate this retirement security risk.

Are you aware of the role annuities can play for you or your clients to ease this concern?

The Response

Retirement will cost the average American an estimated $828,000 as most retirees risk falling short. Aside from Social Security and pensions, annuities are the only products that provide guaranteed lifetime income. By including one in a strategic retirement plan, you may put your clients in a better position to face the financial challenges that stem from longer lifespans.

Average life expectancy is simply a mid-point suggesting half of the whole will live longer than that point, and half will not. Averages aren’t indicators of the length of YOUR retirement. You need to plan to live well beyond your life expectancy…

Tom Hegna, Retirement Expert and FIG Partner

Still not convinced? Jog your mind with these questions:

1. Do your clients have enough money to cover essential living expenses such as food, housing, and healthcare?

To do this, estimate their “income floor,” which is the minimum income they’ll need to cover basic expenses. Next, itemize and total the monthly costs of each expense. These are the costs that your clients will need as long as they live. Then, add up all their income, including from sources such as Social Security or pension plans. Now, do the math to determine if they have an “income gap.”

If Social Security and pensions don’t cover all essential expenses, investing a portion of their assets into an annuity can generate income that lasts as long as our clients live.

2. Do you want to protect your clients’ portfolios against a market downturn?

Preparation and diversification are key to protecting investments from market volatility. While stocks, bonds, and real estate may help portfolios grow, they may not mitigate these risks. Annuities provide another way to diversify your client’s portfolio while providing a reliable income stream that doesn’t depend on the stock markets.

3. Do your clients want flexibility to fund unexpected events?

People may live longer, but sickness is growing. The number of elderly people with four or more chronic diseases is expected to double in less than 20 years. And with the rise of healthcare costs, an unexpected health expense can derail your client’s retirement. When life takes unexpected turns, the next thing you’ll know is that Social Security and pensions just aren’t enough to cover these expenses.

In the event that your client passes away prematurely, their assets won’t be lost. They can be passed to beneficiaries while avoiding the costly probate process.

financial professional speaking to clients at table

Related: Income Planning vs. Selling an Income-Producing Product

The Certainty in the Uncertain

The growth in life expectancy over the past couple of decades has more than doubled. Living through your 80s and 90s is increasingly common. Translated, that means planning for more retirement years down the road.

Your clients worked hard and saved their entire life. They shouldn’t have to worry about changing their lifestyle or living out their golden years in fear. With annuities, they can protect their dreams and add some certainty to their future. After all, retirement is the time in our lives when we can truly live.

Continue Reading: How Annuities Can Address Client Issues

Click here or contact your private client group today for expert assistance in determining your clients’ ideal annuity solution.
Financial Independence Group logo

The information within this article is for educational purposes only and does not constitute legal, tax or investment advice. Customers should consult their tax or legal professional regarding their own unique situation. Annuity products and their related features, benefits, and/or guarantees are backed by the claims-paying ability of an insurance company. The opinions expressed herein do not necessarily represent those of Financial Independence Group, LLC, or any of its affiliates. Financial Independence Group, LLC is not affiliated with the Social Security Administration or any other government entity.

You May Also Like