Investments that Hedge Longevity Risk are Surging

Investors seem to be aware of the fact that they need to hedge longevity risk.  In other words, people are concerned about the risk of outliving their assets.

Sales of deferred fixed annuities increased 60% in 2008.

While many different types of annuity products may be used to hedge longevity risk, the longevity annuity may be optimal if the sole concern is in fact avoiding a scenario in which one outlives their money:

"A 60-year-old with a $1 million portfolio but no pension might allocate half to stocks and half to fixed-income investments. From that fixed-income half, upon retirement the investor should put 10 percent to 15 percent in a product aimed at hedging against outliving the nest egg, Sanderson said.

But your own optimal mix could vary greatly depending on your life expectancy and your portfolio, so consider Sanderson's benchmark a guide for starting a discussion with an independent adviser."

Source: Chicago Tribune

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