Purchasing an annuity is one way to protect against longevity risk in your retirement.
This risk occurs when individuals approach the end of their savings long before the end of their life. Annuities and other risk-pooling options may help them accumulate nearly 50 percent more than they would on their own, according to the American Academy of Actuaries.
The organization recently outlined the benefits of this approach in a letter to the Departments of the Treasury and Labor. In addition to pointing out the lifetime income stream available through some annuities, the letter also stressed the importance of financial education.
“It is significantly more cost efficient for a person to insure against longevity risk through a risk pooling arrangement, such as an annuity, than it is to self-insure that risk by attempting to manage a lump sum,” said Frank Todisco, senior pension fellow for the American Academy of Actuaries.
Unlike life insurance, lifetime annuities do not leave funds for your survivors. This makes it a good option for those without financially-dependent beneficiaries or sufficient retirement savings, according to the Insurance Information Institute.