What is Your Longevity Risk (The Risk You Will Deplete Your Savings Before Death)?

The Congressional Research Service attempts to answer that questions in this recently issued report, "Converting Retirement Savings into Income: Annuities and Periodic Withdrawals."

An analysis conducted by CRS indicates that under specific conditions there is a 95% or greater probability that a man who retires at age 65 will not exhaust his retirement account before the earlier of death or age 95 if his initial withdrawal does not exceed 5% of the account balance and later withdrawals are the same in inflation-adjusted dollars. Under the same conditions, there is a 95% or greater probability that a woman who retires at age 65 will not exhaust her retirement account before the earlier of death or age 95 if her initial withdrawal does not exceed 4.5% of the account balance and later withdrawals are the same in inflation-adjusted dollars.

The report notes that immediate annuities represent only a small portion of retirement assets and suggest that the general lack of interest in immediate annuities may be due to the following factors:

• Potential purchasers may have a sufficient amount of annuitized income from Social Security and defined benefit plan
• The amount and non-transparency of fees charged by insurance companies
• The lack of flexibility needed to deal with unexpected expenditures