"Longevity risk" refers to a potential problem many seniors face: outliving their assets. Statistics show that a 65-year-old man has a 34% chance of living to age 90 and a 17% chance of making it to 95. A 65-year-old woman has a slightly higher longevity risk, with a 44% chance of living to age 90 and a 23% chance of reaching 95. (1)

This means that at least one out of every five baby boomers could have a retirement that spans three decades. (2) How will you spend your retirement years if they number in the thirties? Will your retirement savings be able to support your desired lifestyle?

Do the Split

A split-annuity strategy is one way to help ensure a steady retirement income stream. It involves purchasing two annuity contracts: immediate and deferred. By dividing your money into two annuities, you can receive a current retirement income while also pursuing potential tax-deferred growth.

First, you make a lump-sum contribution to an immediate fixed -annuity, which begins to pay a fixed amount of income right away. Meanwhile, the assets placed in the deferred fixed annuity accumulate tax deferred until they are needed.

The guarantees of fixed annuity contracts are contingent on the claims-paying ability of the issuing insurance company. Most annuities have surrender charges that are assessed during the early years of the contract. Annuity earnings are taxed as ordinary income. Withdrawals prior to age 59½ may be subject to an additional 10% federal income tax penalty.

Longer life spans can present both wonderful blessings and difficult challenges. As you examine your longevity risk, consider the protection that a split annuity might afford during a long retirement. Please call today if you have any questions about how to help protect your retirement assets.

1-2) The Wall Street Journal, December 18, 2006

Afraid of Outliving Your Income?