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A longevity annuity is a type of deferred annuity that’s meant to provide protection against outliving your money late in life. Also known as an advanced life delayed annuity, this type of annuity requires you to wait until you reach age 80 or so to begin receiving a payout. Once the payout begins, the annuity provides a guaranteed, regular amount of income for the rest of your life.

Buying a longevity annuity is like buying a homeowner's or health insurance policy with a very large deductible. You're insuring yourself against a catastrophic risk you can't handle on your own - in this case, running out of money late in life - while holding your premium to a minimum. You typically would invest just a portion of your retirement nest egg in a longevity annuity - say, 10% to 25% - and leave the rest in your other retirement accounts. It’s only worth tying up a small portion of your savings in a longevity annuity, because should you die before you start receiving payouts, the entire balance of your account will be lost.