What If You Outlive Your Retirement Savings?
A growing number of retirees fear they may outlive retirement savings, and the adult children helping them are facing the same uncomfortable arithmetic: a retirement that began at 65 may now need to fund 25, 30, or 35 more years of living expenses, healthcare costs, and the small everyday bills that quietly compound. When the question shifts from “will we have enough” to “what if we don’t,” most households start by looking at the obvious assets — Social Security, the retirement accounts, the home. There is often one asset they have not thought to look at.
This guide walks through where retirement income actually comes from when savings run lower than expected, the sources households tend to forget, and one option many families have never been told about even when an older parent has owned a life insurance policy for decades.
This content is provided for educational purposes only and does not constitute legal, tax, medical, or financial advice.
The Real Math of a Longer Retirement
Two pieces of public data together explain why “what if you outlive your retirement savings” has become such a common kitchen-table question.
The first is longevity. The Social Security Administration’s actuarial life tables show that a 65-year-old in the United States today can expect to live, on average, another 18 to 21 years, with a meaningful share of that population reaching their 90s. Retirement was once planned around a 15-year horizon; for many households the realistic horizon is now 25 to 30 years.
The second is savings. The U.S. Government Accountability Office reported in GAO-19-442R that roughly half of households with a worker age 55 and older had no retirement savings, and that even among households that did have savings, the median balance was well below what most financial planning frameworks consider sufficient for a 25-year retirement. Defined-benefit pensions, once the backbone of retirement income for older workers, have largely been replaced by defined-contribution plans that put both the saving and the spending decisions on the individual.
On top of that, the 2025 Social Security Trustees Report projects that, under current law, the Old-Age and Survivors Insurance Trust Fund will face a funding gap before the end of the next decade, with continuing payroll taxes covering roughly four-fifths of scheduled benefits afterward absent legislative changes. That uncertainty is now part of the planning landscape.
None of this is meant to alarm. It is meant to explain why so many households are doing the same math at the same time, and why the answer often has to come from sources beyond the standard three of Social Security, retirement accounts, and home equity.
Read More: The Complete Guide to Understanding Life Settlements
The Assets Most Households Plan to Use
When a household looks honestly at the income picture for a longer retirement, the planning conversation usually moves through a familiar list of sources. Each has its own rules, limits, and trade-offs.
1. Social Security
For most retirees, Social Security is the income floor. The benefit amount depends on lifetime earnings and the age at which benefits are claimed. Delaying past full retirement age increases the monthly benefit; claiming early reduces it. The Social Security Administration publishes detailed guidance and a personalized estimator for each worker.
2. Retirement Accounts and Pensions
401(k)s, 403(b)s, traditional and Roth IRAs, and any remaining defined-benefit pensions provide the next layer. Required minimum distributions begin at age 73 or 75 depending on year of birth, and tax treatment varies sharply by account type. A licensed financial professional should review the order in which different accounts are drawn down.
3. Home Equity
For households that own a home outright, that equity is often the single largest asset. Some families sell and downsize; some pursue a reverse mortgage that allows them to stay in the home while drawing against equity. Both routes have significant long-term trade-offs and should be reviewed carefully before signing.
4. Part-Time Work, Annuities, and Other Income
Some retirees continue working part-time well into their late 60s and 70s, both for income and for the structure work provides. Others have purchased annuities that convert a lump sum into a contractual stream of payments. Both can be meaningful components of a longer retirement plan.
5. Family Support
Adult children sometimes contribute directly to a parent’s monthly expenses, particularly when a health change accelerates the need. These arrangements work best when documented openly, with attention to tax treatment and to each contributor’s own retirement security.
Each of these sources can be modeled, planned, and discussed with a licensed financial professional. Together they form most of the standard retirement income plan.
Read More: Alternatives to a Life Settlement
The Asset Most Households Forget to Look At
There is one asset that rarely comes up in the first retirement-income conversation, even when a household owns it. If anyone in the household owns a life insurance policy — particularly a permanent policy that has been in force for many years — the policy itself can be part of the income picture.
Most households assume there are only two things a policyholder can do with an unwanted or unaffordable life insurance policy: keep paying premiums, or surrender it back to the carrier for whatever cash surrender value has built up. There is a third option, and it is the one most policyholders are never told about.
The transaction is formally called a life settlement. In a life settlement, the policyholder sells the policy to a licensed third-party buyer for a cash payment. The buyer takes over future premium payments and becomes the new owner of the policy. When the insured eventually passes away, the buyer — not the original beneficiaries — receives the death benefit.
The right to sell a life insurance policy in this way is long-established. It rests on a U.S. Supreme Court decision from 1911, Grigsby v. Russell, which held that a life insurance policy is the personal property of the owner and may be sold. Today the secondary market operates under state-level regulation modeled on the NAIC Viatical Settlements Model Act, which requires licensed providers, mandates disclosures to the seller, and provides a rescission window after closing.
A written life settlement offer, when extended, is typically more than the policy’s cash surrender value and always less than the death benefit. The actual figure depends on the insured’s age, health, the type and size of the policy, the carrier’s financial strength, and other underwriting factors. There is no formula a family can run at the kitchen table to know in advance what an offer would be.
What matters at this stage is awareness. Many policies that ultimately get surrendered for cash surrender value to plug a retirement income gap would have been eligible to attract a written settlement offer first. Once a policy is surrendered back to the carrier, that option is gone.
Read More: How the Life Settlement Process Works
When a Life Insurance Policy May Help Cover Retirement Costs
A life insurance policy that was originally bought for one purpose can sometimes serve a different purpose later. Three patterns come up most often when households take a second look.
The policy that no longer fits its original reason
A policy purchased thirty years ago to replace income for young children, or to protect a mortgage that has long since been paid off, may no longer match the family’s current needs. Continuing premiums on a policy whose original purpose has faded is a common pattern. So is surrendering that policy to the carrier for its cash surrender value. The third option — selling the policy through a regulated life settlement — is the one most policyholders learn about last, if at all.
The premium that has become hard to justify
Cost-of-insurance charges on universal life and variable universal life policies tend to rise with age. A premium that was manageable in a policyholder’s 60s can become a meaningful monthly drag in their late 70s and 80s. Households in this position often face a binary choice between continuing the premium and letting the policy lapse. Eligibility for a life settlement, depending on age, health, and policy specifics, gives some households a third path. Pine Lake’s companion guide on what to do when you can’t afford life insurance premiums covers the decision in more detail.
The policy that became part of an estate plan that has changed
Estate plans evolve. A policy that was built into a tax or liquidity plan years ago may no longer fit the current plan, particularly after a spouse passes away or after a meaningful change in net worth. Reviewing the policy alongside the rest of the plan, with a qualified estate planning attorney and tax professional, may surface options the original planner did not consider.
None of this means a life settlement is right for any given policyholder. It means it is worth knowing the option exists before defaulting to surrender or lapse.
Important Considerations Before Acting on This
A life settlement is one option among several. It is not the answer for every policyholder, and it is not always the best option even when a written offer is on the table. The factors below come up in nearly every educational review.
Eligibility is not automatic
Most life settlement providers consider the insured’s age, health status, policy type, face amount, premium structure, and time in force. Eligibility depends on the specific combination, not on any single factor. Pine Lake’s guide on who qualifies for a life settlement covers the eligibility framework in plain language.
Beneficiaries change
After a life settlement closes, the buyer becomes the new policy owner and the new beneficiary. The original beneficiaries — typically a spouse, adult children, or a trust — no longer receive the death benefit. That trade is the core of the transaction. Families should discuss it openly before proceeding.
Tax treatment depends on individual circumstances
Proceeds from a life settlement may be taxable in part. The IRS framework, including Revenue Ruling 2009-13 and subsequent guidance, draws distinctions among basis, ordinary income, and capital gain depending on the situation. Always consult a licensed tax professional before treating settlement proceeds as a planned source of income.
Public benefits eligibility may be affected
Settlement proceeds may count as a resource for means-tested public benefits, including Medicaid. Households relying on or planning to apply for those benefits should consult a benefits-eligibility professional or elder-law attorney before transacting.
The transaction is regulated
Life settlements are regulated at the state level. Most states require providers and brokers to be licensed, mandate written disclosures to the seller, and provide a rescission period after the policy ownership changes hands. The overview of how life settlements are regulated covers the framework in more detail.
Frequently Asked Questions
How common is it for retirees to outlive their savings?
It is increasingly common, particularly for households that retired before defined-benefit pensions became scarce. GAO research has consistently found that a meaningful share of households approaching retirement have low or no savings, and that the share grows when considering retirements longer than 20 years.
Is selling a life insurance policy the same as cashing it out?
No. “Cashing out” usually refers to surrendering the policy back to the carrier for its cash surrender value. Selling the policy through a life settlement is a transaction with a third-party buyer, not the carrier, and the amount is typically different from the cash surrender value.
Does a life settlement only apply to permanent policies?
Most settlements involve permanent policies — whole life, universal life, variable universal life — but some convertible term policies may also be eligible if they can be converted to a permanent policy before the conversion window closes. Eligibility depends on the specific contract.
How long does the process typically take?
From initial inquiry to closing, the process commonly takes several months. Timing depends on how quickly underwriting information is gathered, whether the carrier’s verification cooperates, and the negotiation between the policyholder and provider. State law also requires a rescission period after closing.
What happens to my premium obligation after a life settlement?
After closing, the buyer takes over future premium payments. The original policyholder is no longer responsible for keeping the policy in force.
Can I still use a life insurance policy for retirement income if I keep it?
Some permanent policies allow policy loans against accumulated cash value, partial withdrawals, or in some cases an accelerated death benefit rider if the insured meets specific health criteria. Each comes with trade-offs. Pine Lake’s guide on cash surrender value walks through several of these.
Sources and Further Reading
- Social Security Administration — Actuarial Life Table
- U.S. GAO — Retirement Security: Most Households Approaching Retirement Have Low Savings, an Update (GAO-19-442R)
- 2025 OASDI Trustees Report — Period Life Expectancy
- NAIC Viatical Settlements Model Act (Model 697)
- Grigsby v. Russell, 222 U.S. 149 (1911)
Final Thoughts
The question “what if you outlive your retirement savings” is one most households will ask at some point, and the answer almost always involves looking at more than the obvious three or four assets. Social Security, retirement accounts, and home equity are necessary parts of the conversation. They are rarely the complete picture.
For households that own a life insurance policy whose original purpose has faded, awareness of every option for that policy — not only the option to keep paying or to surrender — is part of an informed financial picture. The right choice depends on the specific policy, the insured’s circumstances, and the household’s broader plan. None of those can be decided from a single article. They can be discussed, calmly and one piece at a time, with the right professionals on the table.
Ready to start the process with a trusted partner? Start an Educational Review with us today.
Important Notice: This article is provided for educational purposes only. It does not constitute legal, tax, medical, or financial advice. Life settlement eligibility and outcomes depend on individual circumstances, policy structure, underwriting, and applicable regulations. Pine Lake Life Solutions does not purchase life insurance policies and does not provide legal or tax advice.