Retirement strategies: Understanding longevity versus liquidity

Living longer can come with a cost. 

Most of us aspire to live long lives. But living longer means we must come up with the resources to pay for those extra years of living.

According to the U.S. Social Security Administration:

• A man who is 65 years old today can expect to live, on average, until around age 84.‍ ‍^a
• A woman who is 65 years old today can expect to live, on average, until nearly age 87.‍ ‍^a
• For a couple, both age 65, there is at least a 60% chance one of them will make it to age 90, and just under a 10% chance one of them will live to age 100.‍ ‍^b

Since no one can predict how long they will live or their marital status in retirement, this can complicate financial planning for retirees who need an adequate stream of income for an unpredictable time. In addition, people often plan on living only the average life expectancy or they fail to plan for their partner outliving them.

How can an annuity help? 

Income annuities are insurance solutions that can provide income you can't outlive. But to do so requires a financial commitment. That means these funds may not be available for immediate use.

Is buying an annuity for longevity protection worth the cost of giving up some liquidity? 

The answer will depend on individual circumstances, such as your emergency funds, expected expenses for health care or leaving a legacy. In addition, while some folks may spend their retirement money too fast, others may be reluctant to tap into their principal. An income annuity can be a useful solution since it provides income that you can't outlive. It gives you the freedom to focus on what matters to you in retirement.

How do I manage the tradeoff between longevity and liquidity?

In a perfect world, we'd have enough resources to take care of both. But for most of us, good financial management requires a plan to balance the two. Consider the following steps:

• Have enough liquid resources, such as cash or money market funds, to take care of large expenses like large tax payments, home or auto repairs, medical bills or travel expenses.
• Use part of your resources to create a guaranteed income‍ ‍ ^{See note 1} stream to cover your essential expenses.
• Finally, dedicate any remaining resources toward riskier investments, depending on your tolerance and capacity for risk, to improve your quality of life or to leave a legacy to family or charity.

Since your retirement plan depends on your unique circumstances, seek help when needed.

Let us help you review your financial plans and find the best way to reach your retirement goals. Call us at 800-531-3392.

‍ ‍^a Source: Social Security Administration longevity calculator as of June 19, 2023. https://www.ssa.gov/cgi-bin/longevity.cgi "Opens in a New Window"‍ ‍ ^{See note 2}

‍ ‍^b Source: Social Security Administration Longevity Visualizer calculator as of June 19, 2023. https://www.ssa.gov/policy/tools/longevity-visualizer/index.html "Opens in a New Window"‍ ‍ ^{See note 2}