Say I am 65 and want to retire and I have saved up $1 million over my lifetime. I also want to use this money up before I die because I have no heirs. Let's say the average life span of humans is 85 years. If I lived to be 85, I could use up $50,000 of my money per year (ignoring the fact that money earns interest) and exactly run out when I die. However, I don't know how long I'll live and so I'll spend my money more conservatively, and most likely die with a surplus of money.

Is there a retirement product where I give a company $1 million and they keep paying me, for example, $45,000 per year for as long as I live? This is beneficial for me because it takes away the stress of whether I will outlive my money. This is beneficial for the company because on average people my age will only live 20 years more, so the company gets an average profit of $100,000 (= $1 million - $45,000 x 20) per person.

Of course these numbers are arbitrary, but I wrote a concrete example to make things clear. So does a retirement product like this exist?

  • 2
    The answer can vary greatly depending on which country you are in - so a country tag would be very useful. For example, in Australia, we have superannuation pension products that do exactly that - in fact they provide you a tax free income for the rest of your life.
    – Victor
    Nov 15 '14 at 21:34
  • Until recently in the UK this was the only retirement product you could purchase.
    – Brendon
    Nov 30 '14 at 16:37

This is called a Life Annuity, and any life insurance salesperson will gladly sell you one.

  • Thank you very much! I tried in vain to Google this, but I wasn't using the right keywords. Nov 15 '14 at 14:34
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    Actually, any life insurance salesperson will be glad to sell the OP the wrong product (a tax-deferred annuity into which one makes payments over many years) instead of a single-payment or fixed or immediate annuity. It also makes a difference as to how the retirement funds are currently being held, in tax-deferred plans such as IRAs or 401ks or in taxable investments (or in a sock under the mattress). It also matters as to what else the OP wants to do with the money; e.g. is this a 2-person annuity that will provide for a spouse too? A 10-year certain annuity? etc Nov 15 '14 at 14:38

You can also approach some charities with this idea. They can set it up so that the extra funds, if you die early, go to the charity. They will set it up as an annuity through an insurance company they work with.


I cannot give exact details on how to organize this (depend on your country, and beside that i'm no expert on finances either), however, this was recently suggested as a pension alternative:

  1. Use one part of your money to buy a Life Annuity or something similar, starting at the age of 85.
  2. Put the remaining money on a saving account, withdraw 1/20th of it every year.

You used 100% of (2) after 20 years, and then the Life Annuity start to pay out.

This has two advantages. First, it might be flat out cheaper depending on the products and tax laws. For example you do not pay tax on a saving account (other than property tax), but you pay more tax on a Life Annuity.

Second, if you do die before the 20 years are over, you do have a no heirs, but it might still feel better to see your money go to a charity or some other organization you would like to support other than the big pockets of the insurance company when you die early :)

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