Longevity risk is the possibility of outliving your projected life expectancy. This is a great article about how women are fearful of outliving their money.
Below is my take on longevity risk and the critical role annuities play in contractually solving for the growing concern of outliving your money.
We all know that there is an unspoken evil plot against men that allows women to live longer. All men reading this nod your head in agreement! All kidding aside, women do statistically live longer than men. That's a fact.
When annuity companies guarantee a lifetime income stream, that contractual payment amount is primarily based on your life expectancy at the time you start those payments. You are transferring the risk to the annuity company to pay you for as long as you live, regardless of how long that is. Annuities are the ONLY product that contractually solve for longevity risk. That's an undisputed fact.
Most people need to put in place a guaranteed "income floor"...which is the monthly income that hits your bank account regardless of what happens in the world, markets, politics, etc. Social Security payments, pensions (if you are so fortunate), dividend income, interest income, and annuity payments are all items that can comprise your income floor.
You can contractually structure your annuity income for your life or joint life with your spouse or partner to provide part of your income floor. You should quote all carriers for the highest contractual amount for your specific situation.
Annuities are contracts and transfer of risk strategies that primarily solve for lifetime income and principal protection.