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“Among today’s 65-year-olds, roughly one out of four will live past age 90 and one out of 10 will live past 95.”

How to Cope with Retirement's Big Financial Risk: A Long Life

Retirees face all kinds of financial risks, including major market declines, nursing-home costs and inflation. But perhaps the biggest financial risk is a long life—something, ironically, that most of us are hoping for.

The fact is, we might live as little as one or two years in retirement or as much as 30 years or more. Moreover, unless we're in poor health, we likely have only a rough idea of what to expect. That makes it difficult to manage our retirement nest egg because we don't know how long we need to make our savings last.

To get a better handle on the issue, consider some figures from the Social Security Administration. When today's 65-year-olds were born, the life expectancy was age 73 for men and age 79 for women. But such averages can be a bad guide for today's retirees because they are dragged down by those who die before they reach retirement age.

Instead, you might focus on life expectancy as of age 65. The Social Security Administration says a man who is age 65 today can expect to live until age 84, while a 65-year-old woman might live to age 86. Even these life expectancies can be misleading, however, because they obscure a huge range, with some folks dying early in retirement and others living many decades after quitting the workforce.

For instance, among today's 65-year-olds, roughly one out of four will live past age 90 and one out of 10 will live past 95. Indeed, if you are married, there's a greater than 50% chance that one of you will live to at least age 90.

The uncertainty over life expectancy is a key reason that retirees are often advised to be cautious about their portfolio withdrawals. One popular rule of thumb suggests that retirees can withdraw 4% of their nest egg's value in the first year of retirement and thereafter step up their annual withdrawals with inflation. Got $500,000 saved for retirement? The 4% rule would give you $20,000 in pre-tax income in the first year of retirement, including any dividends and interest you receive.

Is there a way to address the risk that you'll live longer than expected, so you end up with more retirement income? Here are four possible strategies:

Deferred income annuities

Often referred to as longevity insurance, these annuities start paying income at some future date. For instance, you might buy a deferred income annuity at age 65 that won't start paying income until you turn age 85. In the meantime, you might spend down your other retirement savings, knowing your income needs will be covered from age 85 onward. That income will depend on the claims-paying ability of the insurance company involved.

Deferred income annuities can come with a variety of bells and whistles, such as guaranteed payments for a certain number of years, with those payments going to your beneficiaries if you die earlier. Guarantees like that can appeal to folks who hate the idea that they might die early in retirement and neither they nor their heirs will get anything back in return for their annuity purchase. But you will pay a price for these features, in the form of lower income, so you might consider the virtues of selecting a life-only option.

Other annuities

Like the idea of having more lifetime income? There's a variety of annuity options available, everything from plain-vanilla immediate income annuities that begin sending you payments of a set amount within one year of purchase to annuities with so-called living benefits. Some of these products can be quite complicated. Before buying, make sure you fully understand all of the features, restrictions and fees involved. For instance, depending on the annuity and the features selected, your heirs may receive little or nothing after your death.

Delay Social Security

You can claim Social Security as early as age 62 or as late as age 70. The longer you delay, the larger your monthly benefit. If you are worried about living a long time, you might finance your early retirement years entirely out of savings, while delaying Social Security so you get a bigger monthly check. Not only will you get that bigger Social Security check for life, but also each year your benefit will increase with inflation.

Financial backstop

Another possible strategy: You could set aside, say, 15% of your portfolio and earmark that sum as money to be spent starting at age 85. Once you reach that age, you might assess your health. If you don't have any major health issues, you could use the money to buy an income annuity. The annuity would likely pay relatively generous amounts of income, given your advanced age. What if your health isn't so great? You might simply spend down the money.

The downside: If you don't make it to age 85, this is money you could have enjoyed—but never got a chance to spend. Still, even if you don't get to enjoy the money, presumably your heirs will.


This is intended for informational purposes only. It is not an offer to buy or sell any of the securities, insurance products, investments, or other products named.

Source: Life-expectancy data from the Social Security Administration ( and

It's important to understand that an annuity is a long-term, tax-deferred investment that is designed for retirement. A variable annuity's value and return will fluctuate with the performance of the investment options you choose within the annuity. An annuity allows you to create an income stream that can be fixed or variable. The performance of investment options within a variable annuity are subject to investment risk, including the potential loss of the money you've invested. An annuity has contract fees and charges.

These strategies do not necessarily represent the experience of clients, nor do they indicate future performance or success. Investment results may vary. The investment strategies presented are not appropriate for every investor.

© Citigroup Inc. Citi Personal Wealth Management is a business of Citigroup Inc., which offers securities through Citigroup Global Markets Inc. ("CGMI"), member SIPC. Insurance is offered through Citigroup Life Agency LLC ("CLA"). In California, CLA does business as Citigroup Life Insurance Agency, LLC (license number 0G56746). CGMI, CLA and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc. Citi and Citi with Arc Design are registered service marks of Citigroup Inc, and its affiliates and are used and registered throughout the world.

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