LONGEVITY RISK:

Longevity risk is an increasingly important consideration in retirement planning. As life expectancy climbs and traditional retirement milestones shift, advisors are on the front line of helping clients rethink how long their money needs to last. With the right strategies, you can turn an uncertain risk into lasting confidence for your clients.

These two risks are often mentioned together, but they carry very different implications for retirement planning:

• Longevity risk = Outliving retirement assets.

• Mortality risk = Passing away earlier than expected.

Both shape retirement planning and should be discussed with clients, but longevity risk puts the focus on sustaining retirement income for life, not just leaving a legacy. In practice, longevity risk often feels more immediate because clients ask, “Will I outlive my money?” Mortality risk, meanwhile, drives concerns like, “What happens to my spouse if I pass away first?” A thoughtful retirement plan addresses both sides but emphasizes income sustainability so clients feel financially secure whether they live 10 years in retirement or 40.

Longevity risk doesn’t exist in a vacuum; there are other market factors that have a big impact over time, like inflation. Even modest inflation steadily erodes purchasing power over a 20- to 30-year retirement, making today’s income feel inadequate tomorrow. For clients who live longer, this risk compounds, and expenses like healthcare and everyday living may rise faster than expected. Advisors can address both risks together by building strategies that provide not only guaranteed lifetime income, but also growth potential to help offset inflation over time.

A 65-year-old client has $750,000 in savings and needs $50,000 per year (before inflation) to supplement their Social Security. (Note that in this example, we are not adjusting year over year earnings for cost of living, but Social Security benefits are reevaluated for inflation yearly.)

• If they live 20 years (to age 85): With 2.5% inflation, annual expenses grow to about $82,000 by year 20. Over two decades, they’ll need roughly $1.2 million total.

• If they live 30 years (to age 95): Annual expenses grow to nearly $106,000 by year 30. Over three decades, total withdrawals climb to about $1.9 million, more than double their original savings.

The difference between 20 and 30 years in retirement isn’t just 10 extra years; it’s an additional $700,000 in spending needs driven largely by inflation. This makes guaranteed income solutions and growth strategies essential to protecting clients who live longer.

• Couples: Longer combined life expectancy means one partner is likely to live much longer than the other, requiring income continuity for the survivor.

• Singles: No partner’s benefits to rely on; financial independence must be sustained.

• Widowers: Sudden loss of a spouse often means reduced Social Security benefits and possible lifestyle adjustments.

• Nearing retirement: Urgent need to align savings, income products, and retirement date. Unlike current retirees, most workers approaching retirement don’t believe they’ll have enough guaranteed lifetime income—such as Social Security, pensions, or annuities—to cover their basic living expenses. In fact, only 48% of non-retirees surveyed in 2024 by LIMRA expect these sources to fully meet their essential needs without tapping into personal savings.

• Living in retirement: Focus shifts to efficient withdrawal strategies and protecting assets against market volatility.