Longevity Risk

Longevity risk is the possibility that you live longer than your retirement plan assumed. A plan built to age 85 for a healthy 65-year-old couple is a plan with a one-in-three chance of failing from longevity alone. According to Social Security Administration data, for a 65-year-old couple today, there is roughly a 50% chance one spouse lives past 90 and a meaningful chance of living past 95.

Longevity risk compounds every other risk in the plan. A bad market year is harder to recover from when you have 30 more years of withdrawals ahead, not 20. Inflation erodes purchasing power more over a longer retirement. Long-term-care exposure grows, because the probability of needing care is cumulative across years.

The defense against longevity risk is guaranteed lifetime income — income that cannot be outlived, regardless of how long you live or how the market performs. Social Security is one source; pensions, where still available, are another. Annuities with lifetime-income riders are the third, and often the only one still under the client's control.

A well-structured retirement plan typically layers enough guaranteed lifetime income to cover essential expenses (housing, food, utilities, healthcare) — so that no matter how long you live, the lights stay on and the groceries stay stocked. Growth-oriented portfolio assets then fund discretionary spending on top of that income floor.

Without that floor, the plan is effectively a bet on the market and on longevity — and those are two bets the average retiree shouldn't have to make.