By Marc Gilman
(800) 927-9326 |
This is the third and final post in a three-part series on the greatest financial risks retirees face — and the insurance strategies built to address each one.
Key Takeaways
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Longevity is a retirement risk in its own right: the longer you live, the longer your savings need to last, and there’s no way to know that number in advance.
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A portfolio built purely on withdrawals has no guarantee it will outlast you — market performance, withdrawal rate, and lifespan all have to line up correctly.
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Pensions used to solve this problem automatically. Fewer retirees have one today, which shifts the responsibility for creating guaranteed income onto the individual.
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Annuities and pension-protection life insurance are two of the main tools built specifically to guarantee income keeps flowing for as long as you or your spouse are alive.
Why Is “Not Securing a Lifetime Cashflow” a Retirement Risk?
The first two posts in this series covered specific events — losing a spouse, needing long-term care — that can disrupt a retirement plan. This risk is different. It’s not a single event. It’s a structural gap: building a retirement income plan around savings and investments alone, with no guarantee those assets will actually last as long as you do.
A traditional withdrawal strategy — drawing a percentage of a portfolio each year — depends on a few things going right at once: reasonable market returns, a sustainable withdrawal rate, and a lifespan that doesn’t outpace the math. Live longer than expected, hit a rough stretch of market years early in retirement, or need to draw more than planned in a given year, and the plan can come under real pressure. Unlike a pension or Social Security, a portfolio doesn’t come with a guarantee that it keeps paying no matter how long you live.
Pensions used to handle this automatically for a large share of retirees. As fewer employers offer them, more of that responsibility has shifted to individuals to design intentionally, rather than something an employer guaranteed by default.
How Does a Pension Gap Show Up for a Surviving Spouse?
This risk connects directly back to the first post in this series. When a pension is in place, the payout option elected at retirement determines what happens to that income if the pensioner passes away first — some options continue paying the surviving spouse a reduced amount, others stop entirely.
As one recent industry analysis of retirement life insurance needs put it: if a pension’s income stops or drops when the pension-holder dies, the surviving spouse may need a separate source of income to make up the difference. Life insurance is one of the more direct ways to fill that specific gap — a paid-out death benefit standing in for lost pension income the surviving spouse would otherwise be counting on.
Where Does Insurance Planning Fit In?
There are a few tools built specifically to create or protect guaranteed lifetime income:
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Income annuities convert a portion of savings into a guaranteed income stream that continues for life, functionally recreating the kind of guarantee a pension used to provide.
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Annuities with a lifetime income rider allow continued access to the underlying account value while still guaranteeing a minimum income floor for as long as you live.
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Pension-protection life insurance provides a death benefit sized to replace pension income the surviving spouse would lose if a “life only” or reduced survivor payout option was elected, without requiring a pension election that permanently lowers income while both spouses are alive.
Which combination makes sense depends on how much of your retirement income is already guaranteed (Social Security, any pension), how much is portfolio-dependent, and how comfortable you are with market variability driving your income year to year — all worth mapping out with a licensed advisor before deciding.
What To Do Next
If your retirement income currently depends entirely on portfolio withdrawals, with no guaranteed floor underneath it, that’s worth a closer look. Gilman Agency can walk you through annuity and pension-protection life insurance options side by side, so you can see how each would actually secure your household’s income over the long run.
Call us at (800) 927-9326 or email to schedule a review.
This concludes our three-part series on the greatest financial risks retirees face: losing a spouse, the cost of long-term care, and securing a lifetime cashflow.
Sources: Andrew Rosen, “Do You Still Need Life Insurance In Retirement? Here’s How To Know,” Forbes; Social Security Administration guidance on retirement benefit claiming.
