Why Is Longevity Risk Growing?
Average life expectancy has increased significantly — a healthy 65-year-old couple has roughly a 50% chance that one of them will live past 90. Traditional planning for a 20-year retirement is increasingly inadequate. Meanwhile, the decline of defined-benefit pensions shifts longevity risk from employers to individuals, making personal planning more critical than ever.
How Can You Manage Longevity Risk?
Key strategies include: delaying Social Security to maximize lifetime benefits (each year of delay increases benefits ~8%), purchasing a partial annuity for guaranteed income, using a conservative safe withdrawal rate, maintaining equity exposure for growth through a proper glide path, and planning for healthcare costs with an HSA.
What Role Does Healthcare Play in Longevity Risk?
Healthcare costs rise sharply with age and are a leading cause of retirement savings depletion. Medicare covers many expenses but not long-term care, dental, or vision. The average 65-year-old couple may need $300,000+ for healthcare in retirement. Long-term care insurance or dedicated healthcare savings can mitigate this component of longevity risk.
Frequently asked questions
How long should I plan for retirement to last?
Financial planners generally recommend planning for at least 30 years of retirement if you retire at 65. If you retire early or have a family history of longevity, plan for 35-40 years. It is better to overestimate your time horizon than to run short.
Does Social Security protect against longevity risk?
Partially. Social Security provides inflation-adjusted income for life, making it one of the best longevity protections available. Delaying benefits until age 70 maximizes this protection. However, Social Security alone rarely covers all retirement expenses.