An average 65-year-old man today can expect to live to age 84. For a 65-year-old woman, it's age 87. And those are just averages.
If outliving your savings is a big fear, one relatively new option to make your money last in retirement has become more widely available—a qualified longevity annuity contract, or QLAC.
In July 2014, the Internal Revenue Service and Treasury Department ruled that QLACs, a type of deferred income annuity, could be included in IRAs or other retirement accounts. Under current rules, investors are allowed to put up to $125,000 from a traditional IRA or employer-sponsored retirement plan into a longevity annuity that pays out at a much later date, anywhere from age 70½ years until age 85 (with payments increasing the longer you wait).
The advantages of a QLAC are that they provide a stream of lifetime income if an investor reaches old age and contributions to a QLAC can decrease required minimum distributions from an IRA or retirement plan that occur once an investor turns age 70½.
"For someone who doesn't need all the money now, [a QLAC] can be a valuable tax reduction tool," said Gilbert Armour, a certified financial planner at Sagepoint Financial in San Diego.