How to Not Outlive Your Income

By Aviva Sapers 

Many of our clients have voiced a concern of outliving their income. Given that much of today’s workforce have not saved enough to guarantee a financially secure retirement – a recent study found that the average median savings of millennials is only $8,000(1) —this is why we wanted to discuss what can erode retirement savings, as well as pose some solutions.

There are many factors that can lead to outliving your income: longevity, rising healthcare costs, inflation and market decline. A study suggests that a 65-year-old male today, in average health, has a 35% chance of living to 90; for a woman the odds are 46%. If our two 65-year-olds live together, there is a 50% chance both will still be alive 16 years later, and that one will survive 27 years. (2) Due to scientific advances in healthcare and a renewed focus on healthy habits, people are living significantly longer than they did just 50 years ago. With the advancement in medicine comes higher healthcare costs, which can dramatically affect your assets. Studies have shown that a healthy 65-year-old couple retiring in 2021 can expect to spend more than $662,000 for retirement health care costs. (3)

Inflation can also play a significant role in the erosion of your wealth. Average inflation has been around 3% and last year it was closer to 8%. This means you will likely need to spend increasingly more of your retirement monies each year to be able to maintain the lifestyle you are accustomed to. If you look at the cost of bread, gas, and milk compared to 30 years ago, you will see just how much the cost of goods and services have risen and are likely to continue to do so. Yet few people plan their retirement allocation with such increased spending needs in mind.

Despite these likely unavoidable eroding factors to your retirement assets, there are possible solutions to consider. There are three basic stages to retirement: accumulation, distribution, and conservation. Most of the retirement timeline is spent in the accumulation stage, where you put money away into a 401(k)/403b)/IRA and let it grow. The ups and downs during this stage should not impact your life directly, as you are not accessing the monies yet for income purposes. But when you enter or near retirement and the distribution stage, this is when you will need to change the way you have been thinking for the past 35-40 years.

Having a portion of your wealth guaranteed to cover basic living expenses is something we recommend for many retirees. But what strategies are available to provide guaranteed income you cannot outlive? For “tax qualified money,” an efficient vehicle is the use of an annuity. There are many types of annuities that serve many different purposes, so we’ll cover two basic types.

A Single Premium Immediate Annuity works like most pensions in that a lump sum of money is given to an insurance company and based on your age/mortality, they guarantee you income for as long as you live. You can choose options such as life payments, with a 10-year period guaranteed where the monies will be paid out to your beneficiary if you die before the period is up. You can also elect to cover a spouse if you are to pass first. Both options will pay a lower amount than if you just choose income for your life only. The downside in this type of annuity is that there is no liquidity in this option, just the annual income. For some people, the idea of giving up a substantial portion of their portfolio is a concern, which brings us to another option that we recommend to many of our clients.

A Variable or Indexed Annuity with a guaranteed living benefit rider can be a great solution to protect against the eroding factors listed above. There are many variations, so we will outline some basic features and how it works in general. Typically, these are used for people near retirement. A 60-year-old couple who do not want income until 67, and are concerned about outliving their income, can benefit from many features. The ability to lock-in investment gains on an annual basis or receive a 5% simple interest annually can protect your income stream if the market were to drop. While one’s actual portfolio will reflect the underlying investment performance, the “income base” will grow within these locked-in parameters, and that is what your income is based on when withdrawing. At 67, this couple can begin withdrawals at a rate anywhere between 5%-7.5% of the income base. Once the income flow is started, the insurance company guarantees an income for as long as you and/or your spouse lives. Furthermore, you still own your asset, so if you have an emergency you can dip into the account balance to cover the need.

This strategy can offset many, if not all, of the eroding factors discussed at the start. We insure our homes, cars, and lives with insurance, but many fail to insure their biggest asset, their retirement income. If you or someone you know would like to learn more about insuring an income you cannot outlive, please contact us to set up a meeting.

(1) Meet the Average American Millennial, Who Has an $8,000 Net Worth (

(2) What’s Your Retirement Number? No, Not Savings — Life Expectancy (

(3) Health Care Costs in Retirement: What to Expect, How to Plan (

The opinions above are for general information only and are not intended to provide specific advice or recommendations for any individual.

Fixed Annuities are long term insurance contracts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract.

Indexed annuities are insurance contracts that may offer a guaranteed annual interest rate and possible participation growth of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Surrender charges apply if not held to the end of the term.

The prospectus, which contains information about the variable annuity contract and the underlying investment options, can be obtained from the insurance company or your financial professional. The investment return and principal value of the variable annuity investment options are not guaranteed. The principal may be worth more or less than the original amount invested when the annuity is surrendered.

Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company. Investors are cautioned to carefully review an annuity for its features, costs, risks, and how the variables are calculated.