Diversify Your Portfolio with a Longevity Annuity

Published September 8, 2017
Longevity annuities are comparable in many ways to low-risk fixed income investments, which provide steady, reliable income that doesn’t depend on the stock markets. We’ve laid out how a longevity annuity fits well in a diversified portfolio.
  • Longevity annuities provide a guaranteed income in retirement to cover basic spending needs, which allows you to invest the rest of your savings better

Here’s advice that you’ve probably heard before — diversifying your portfolio is good. That means making sure your savings are invested in a variety of products so that you have a secure retirement, even if one investment doesn’t work out like you hoped. You may not have considered putting a longevity annuity in your portfolio before, but we’re here to show you how it can fit into your retirement planning and why it’s a good idea to secure lifelong income.

Generally, you’ll invest in a combination of equity and bond market investments that you are comfortable with, depending on how risky you want to be and when you plan to retire. The further from retirement you are, the more risky you can afford to be — so more equity investments, like stocks. The closer you get to retirement, you will want to shift more and more to safe fixed income investments, like bonds.

Fixed income investments provide steady, reliable income that doesn’t depend on the stock market. Sound familiar? That’s because it is — a longevity annuity serves this exact purpose, but with an additional, major benefit: the income payments will continue for your whole life. There’s no balance to run down, because it’s an insurance product!

Allocating a portion of your savings to a longevity annuity can generate comparable quantitative returns to an investment grade fixed income and investment and eliminate the risk of outliving your savings, giving you a peace of mind. In fact, a longevity annuity can allow you to be riskier with the rest of your investments and earn a higher rate of return on those. If your longevity annuity generates enough income to cover your basic living and medical expenses in retirement, you have even more flexibility to invest the rest of your money in higher-return (but higher-risk) stocks to cover discretionary expenses, without putting your future at risk.

One final benefit of owning a longevity annuity is the ability to invest and manage the rest of your portfolio to a fixed time horizon. That is, you’ll know exactly what type of income your portfolio needs to generate and for how long if the longevity annuity will be covering your expenses starting at a known point in the future.

Nimish Shukla

Nimish Shukla

Financial Planning Professional

Nimish has spoken with thousands of customers about retirement spending. As a CFA Charterholder and licensed fixed annuity producer he values the importance of building an income stream for retirement. In addition to his work at Blueprint Income he is also a regular contributor to Nerdwallet.