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Birdgeside Insurance Newsletter

How to Factor Longevity Risk into Your Retirement Strategy

In 1935, the first Social Security legislation was passed, providing Federal benefits in retirement for those over the age of 65. The average life expectancy then was only 61, so many Americans never saw benefits, or if they did, only received them for a very short time. Today however, the average American can expect to live 78.7 years, well past age 65. This is just one reason why most of us aren’t counting on Social Security as a primary means of income in retirement. In fact, even funding your own retirement account may not be enough for the average healthy individual. That’s why factoring longevity risk into your retirement strategy is worth exploring.

What is Longevity Risk? As it relates to retirement income, longevity risk is the risk of potentially outliving one’s assets during retirement due to an increasing average life expectancy.

To properly plan for this risk, it’s important to ask yourself the following questions:

1. What am I planning for? Living longer brings with it a variety of factors you should consider now as you plan for the future. These include:

  • Lifestyle: Chances are your retirement won’t mean settling down for a quiet life. You may want to sell your home and travel the world, or go back to school for a different degree. Perhaps you have a passion you’ve always wanted to explore, or would like to be hands on by helping with your grandchildren. Whatever path you choose, planning for your lifestyle in retirement now can help you achieve your goals.

  • Health care: As you age, your health care costs will rise. From routine exams to the expense of chronic conditions, living longer means spending more on your well-being over time. In addition, you may find the need for professional medical care for yourself, a spouse, or another dependent family member in the future.

  • Independence: At some point you’ll slow down and require different living arrangements. This can include alterations to your home to accommodate your needs, transportation expenses when you can no longer drive, and the decision to transition into assisted living. Planning ahead will give you the most options when the time comes.

2. What can I do? The right strategy may help you to reduce or potentially eliminate longevity risk altogether. Once you’ve answered the first question, make plans to meet with a financial professional. They can discuss how certain financial vehicles such as a fixed index annuity (FIA) may be a beneficial addition to your retirement income strategy. An FIA can provide a guaranteed income stream for life, protection of your principal and any credited interest earned, and in some cases, account for inflation with increasing income potential.

Living longer has plenty of advantages. Don’t let your finances hinder your goals for the future. Factor longevity risk into your retirement strategy now, and you can look forward to the years ahead.

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