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Life Annuities Can Create a Hedge against Longevity

Life Annuities Can Create a Hedge against Longevity

A key factor in how much money you will need when you retire is how long you will live; the longer you live, the more money you need. To offset at least a portion of "longevity risk," you may want to think about setting up a life annuity.

Life annuities are designed to provide guaranteed monthly income for as long as you live. You make monthly payments to the annuity under the terms of your agreement; when you retire, you start receiving monthly checks based on that agreement. (If you like, think of a life annuity as a form of pension or other defined-benefit plan.)

You may not want to place all your retirement eggs in the life annuity basket. The best investments plans are diversified, so consider placing a portion of your monthly savings into a life annuity that will guarantee some level of monthly income no matter how long you live; other retirement investments can provide additional funds.

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