Life expectancy continues to increase in the United States. While a male born today can expect to live about 75 years and a female nearly 80, once you reach the age of 65, statistics from the Social Security Administration say you’ll likely surpass those marks. A 65-year-old male can expect to live more than 16 additional years, and a female that age can expect to live almost 20 years more, taking both past age 80. And, once you hit age 75, statistics indicate you’ll make it past age 85.

While we welcome these extra years, they bring with them some challenges, not the least of which is figuring out how to support oneself financially. When you leave the active, full-time work force, what should you do with your retirement savings to ensure that you’ll still have money to pay the bills 20 or even 30 years down the road, assuming longevity is on your side? Some insurers are providing one answer to this question: longevity insurance.

Basically, longevity insurance is a type of annuity that begins to pay a guaranteed monthly income at a later age. You generally pay a single lump-sum premium up-front, say when you retire at age 65, but don’t begin to receive annuity payments until you reach age 85. In the meantime, you live on income from other sources, such as social security and/or a pension, supplemented by money you draw out of your retirement savings.

Knowing that you’ll have a guaranteed source of income when annuity payments kick in at age 85 alleviates some of the concern that you will outlive your retirement savings. Insurers that offer this product market it as protecting against longevity risk, or insuring against the risk of outliving one’s assets. You also can think of longevity insurance as simplifying retirement income planning: With longevity insurance, you know that at least a portion of your income will be available at a later date, which means you have a known, finite number of years before that over which your retirement savings needs to last.

Here are some additional points to remember about longevity insurance:

• These policies generally are paid for via an up-front lump-sum premium. This means that if you buy longevity insurance at about the time you retire, you’ll probably be using some of your retirement savings to make the purchase. You need to consider whether you have enough saved to be able to do this, and if so how much you want to allocate to the longevity insurance purchase.

• You generally must reach the annuity start date before you will receive any money back from your investment. As insurers refine this product, some are adding an optional death benefit feature so that your heirs can receive at least something in return if you die before the annuity start date. This, however, will reduce the monthly income amount that your initial premium payment buys you.

• Because you’re paying for something today that you won’t be able to use for 20 years (if you buy at age 65 for payments to begin at age 85), be careful in choosing the insurance company you buy from. Look for a reputable, stable, financially secure company that’s likely to still be in business when you’re slated to receive payouts.

Not everyone will live until age 85, of course, which means that, as with any kind of insurance, there’s no guarantee that any benefits will ever be paid. But don’t let this prospect close your mind to the idea of longevity insurance…insurers are able to offer coverage for surprisingly reasonable prices, and for many people, it can be a perfect addition to a retirement income plan. Consult with your financial advisor or insurance broker for details, and to discuss whether longevity insurance should be a part of your retirement income planning.

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