"Nothing is certain but death and taxes," Benjamin Franklin once said. That was in the 18th century. The 21st century adaptation might be, "nothing is certain but longevity and taxes."
Longevity is a known financial risk and its importance will grow year after year, right along with consumer need for income annuities.
But longevity is not well understood. Too often retirement planning ends with addressing income needs only through average life expectancy, which is about age 85 for male annuitants and age 87 for females who currently are age 65.
Planning only through life expectancy is like pretending that longevity risk does not exist. In fact, longevity risk begins at life expectancy–the risk that someone will live longer than average. There is significant and growing probability of living to age 90, 95, 100 or more.
This means that, when planning for the future, individuals need to recognize the possibility of a very long life and the uncertainty of how long that might be.
Life expectancy for annuitants is actually higher than the ages commonly cited. Two important factors contribute to this. First, annuitants are healthier than the general population because annuities are generally purchased by individuals with above-average health who figure they will gain the most advantage from an annuity purchase. Also, mortality improves each year, adding approximately 1.5 years of life expectancy; this is usually overlooked.
Furthermore, longevity improvement will be magnified if significant life-extending medical breakthroughs occur.
Annuities can address longevity risks in all markets, but high income retirees should not be overlooked. Annuity purchasers with high annual payouts show mortality as much as one-third lower than purchasers of small annuities, according to research published by the Society of Actuaries. At age 65, each 10% reduction in mortality indicates an approximately one-year increase in life expectancy. This suggests that the planning horizon should be approximately three years longer for higher income individuals, who are above-average candidates for annuity solutions because they are positioned to benefit the most.
Noel Abkemeier, F.S.A., is a consulting actuary with Milliman, Inc., in the Williamsburg, Va. office. His e-mail address is 
