Return on Retirement

Avoiding ‘Money Death’ — A New Option for Your Nest Egg


The good news is Americans are living longer. But the worry for many retirees is that they'll outlive their savings.

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The average life expectancy for men in the U.S. now reaches 83 years old — and women are living to age 86. Living 20 years or more beyond the traditional retirement age may call for some non-traditional investmentmoves.

Conventional strategies call for putting more money into bonds and less into stocks as you grow older, to minimize financial risk. Barry Gillman, research director of the Brandes Institute, says market risk should not be an older investor's biggest worry.

The greatest risk is more ominous than market volatility, says Gillman. "For somebody who's at retirement age or fairly soon after retirement age, their real risk is money death."

If you're a healthy Baby Boomer or retiree, "money death"—running out of money in retirement—may be more likely than the possibility of taking a huge financial hit to your portfolio.

But to prepare for either scenario, he says the goal should be to foster long-term returns -- by investing in higher-yielding securities, like dividend-paying stocks.

Then add to that mix, a bit of protection.

Buy "longevity insurance" - a type of insurance that ensures a stream of income in your later years.

How It Works

You can set aside funds now for an annuity that will make payments when you're 80 or 85. So if you're 60 now, and like many pre-retirees, uncertain of your nest egg, you can use a portion of your portfolio to buy longevity insurance, which will pay out when you reach 80.

Gillman says the process works well because it allows pre-retirees 20 or 25 years to build up savings in return for a much higher pension or annuity than if you bought an annuity right now.

Combining a high-yielding investment portfolio, with longevity insurance will give retirees investment growth and insurance protection. But remember, longevity insurance is not an investment, it's for investment protection. If you don't reach age 80 or 85, you won't get the money

Who Should Buy It?

If you're between 55 and 70 and in good health, you may want to consider buying this type of insurance. But don't buy too much. Gillman suggests putting no more than 10 percent of your portfolio's value toward this product.

Where Can You Buy It?

The U.S. Treasury Department endorsed the concept of longevity insurance as a potential offering to workers when it announced new 401(k) plan rule changes last month. (Click here to read the story.) But it's probably not part of your plan, yet. You can buy longevity insurance on your own, through companies like MetLife, New York Life and Symetra .