You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
EDITOR'S NOTE: This article was originally published in the September 2007 issue of Kiplinger's Retirement Report. To subscribe, click here.
If you're ready to leave the workforce, you face a big decision: how to convert your assets into a steady stream of income. One of the most popular tools is the immediate annuity, where you give an insurance company a chunk of money in exchange for a promise of regular payments for the rest of your life.
| Row 0 - Cell 0 | Annuities With New Promises |
| Row 1 - Cell 0 | Everything You Need to Know About Annuities |
| Row 2 - Cell 0 | Savvy Ways to Tap Your Retirement Savings |
But a new study has found that a relatively new type of annuity -- called longevity insurance -- may offer a bigger bang for your buck. Like an immediate annuity, you might invest a certain amount of money at age 65. But instead of receiving payments immediately, with the longevity product you don't start collecting monthly payouts for 20 years.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If your primary concern is making sure you have money in old age, the longevity annuity is a better deal than an immediate annuity, says Jason Scott, the study's author and managing director of the Retiree Research Center at Financial Engines, a Palo Alto, Cal., company that provides investment advice. "You're worried about your portfolio running out of money in 20 or 30 years -- not next year," he says.
Of course, there's a good chance you'll never see a cent from a longevity product. Today's 65-year-old man has about a one-in-three chance of living to age 85; for women, the odds of reaching age 85 are about one-in-two. (Because women live longer, longevity products are more expensive for them.)
So, what's the appeal? Scott notes that by buying insurance against the costs of very-old age, a retiree can be liberated to spend more of his or her portfolio between ages 65 and 85. For instance, he says, a 65-year-old man with a $1 million bond portfolio would need to set aside $338,000 to provide adequate income between 85 and 100. The remaining $662,000 would be enough to provide annual income of $58,800 each year between ages 65 and 85, assuming a 2.5% real (after-inflation) return. But if the retiree buys a longevity policy for $79,000, he could boost his annual income starting at age 65 to $71,500.
Why the big bump up? Because by insuring himself against the costs of very-old age, he can now spend the $259,000 that he otherwise would have had to preserve to tap after age 85. Buying the annuity allows him to spend down the entire $921,000 -- and all its earnings -- during the two decades between 65 and 85, rather than the stunted amount available if he has to rely on his portfolio to cover potential expenses between 85 and 100.
"You're able to spend your portfolio at a higher rate because you don't have to set aside so much for your later years," Scott explains. Of course, in this scenario, at age 85 (if you make it to that age), your entire portfolio will be used up. There will be nothing left for your heirs. If it's important for you to leave money to your family, longevity insurance may not be the best option for you.
If your health or your family history makes it unlikely that you'll live past age 85, there's little point in buying the insurance, Scott concedes. You can boost annual withdrawals from your portfolio by basing them on a shorter estimated lifespan. (You can download the study, The Longevity Annuity: An Annuity for Everyone?, at http://ssrn.com/abstract=992423.)
Longevity products are offered by Metropolitan Life Insurance Co. and The Hartford Financial Services Group. It's a good idea to check with a financial planner before you buy. Prices may differ from those in the study. Also, it's possible that a portfolio allocated among stocks and bonds could generate more than the study's bond-only portfolio, diminishing the advantage of the annuity. And if you're more comfortable with guaranteed income from day one of retirement, stick with an immediate annuity.
-
Dow Leads in Mixed Session on Amgen Earnings: Stock Market TodayThe rest of Wall Street struggled as Advanced Micro Devices earnings caused a chip-stock sell-off.
-
How to Watch the 2026 Winter Olympics Without OverpayingHere’s how to stream the 2026 Winter Olympics live, including low-cost viewing options, Peacock access and ways to catch your favorite athletes and events from anywhere.
-
Here’s How to Stream the Super Bowl for LessWe'll show you the least expensive ways to stream football's biggest event.
-
What Does Medicare Not Cover? Eight Things You Should KnowMedicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
15 Reasons You'll Regret an RV in RetirementMaking Your Money Last Here's why you might regret an RV in retirement. RV-savvy retirees talk about the downsides of spending retirement in a motorhome, travel trailer, fifth wheel, or other recreational vehicle.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Estate Planning Checklist: 13 Smart Movesretirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
