Longevity Risk: Will Your Retirement Savings Last as Long as You Do?
- John Macy
- 6 days ago
- 8 min read
Written by John Macy, Financial Coach, MBA, Retirement Income Certified Professional® (RICP)
Part 3 of the Retirement Risk Management Series
"The biggest financial risk in retirement may be the one most people hope to experience—living a long life."
Introduction
Most people worry about dying too soon. Very few worry about living too long. Ironically, from a financial perspective, living too long is often the greater challenge.
Imagine retiring at age 65 with a carefully constructed financial plan designed to last 20 years. Now imagine living to 95. Nothing has gone wrong. Your investments performed reasonably well. Inflation remained manageable. You simply lived much longer than expected.
That is longevity risk.
Unlike a market crash or recession, longevity risk isn't a failure of your retirement plan — it's often the result of good health, better medical care, and a little good fortune.
The challenge is that every additional year of retirement requires another year of income.
A retirement that lasts 30 or even 35 years places dramatically different demands on a portfolio than one lasting only 15 or 20 years.
A 65-year-old married couple has roughly a two-in-three chance that at least one spouse will live to age 90 and about a one-in-three chance that one spouse will live to age 95. In other words, planning for a 30-year retirement isn't a conservative assumption — it may be the most realistic one. |
What Is Longevity Risk?
Longevity risk is the possibility that you live longer than your financial resources can support.
Many retirement plans implicitly assume an average lifespan. The problem is that no one knows whether they'll be average. Half of all retirees will live longer than average.
Planning for the average therefore leaves many households exposed, and the consequences can be significant. Running out of money late in life often coincides with rising healthcare expenses, reduced earning capacity, and fewer opportunities to recover financially.
Most retirement risks are external events. Markets crash. Inflation rises. Tax laws change. Longevity risk is different because it comes from something positive — you simply live longer than expected. Unfortunately, every extra year of life also requires another year of income.
Why Life Expectancy Can Be Misleading
Average life expectancy is useful for governments and insurance companies when thinking about how to finance retirements and medical costs for a large population of people. However, it is much less useful for retirement planning for an individual or couple.
Suppose the average life expectancy for someone your age is 86. That does not mean your retirement only needs to last until age 86. It simply means that about half of similar people will live longer.
Retirement planning is not about preparing for the average outcome. It is about preparing for a range of possible outcomes.
How Long Might You Live?
The chart below might surprise many investors.
According to actuarial data from the Social Security Administration and longevity researchers:
For a healthy 65-year-old:
Roughly one in three men will live past age 90.
Roughly one in two women will live past age 90.
For married couples, the probabilities become much larger because only one spouse needs to survive:
Approximately two-thirds of healthy 65-year-old couples will have at least one spouse reach age 90.
Roughly one-third will have one spouse reach age 95.
Those statistics have profound implications.
If you're planning for a married retirement, there's a good chance your portfolio will need to provide income for 30 years or longer.
Ironically, the households most likely to accumulate substantial retirement savings are also among the most likely to need those savings to last the longest. Higher income, better education, healthier lifestyles, and better access to healthcare are all associated with longer life expectancy. In other words, financial success doesn't eliminate longevity risk — it often increases the planning horizon.
Longevity Is a Moving Target
One reason retirement planning is so challenging is that life expectancy is not a fixed number. Over the past century, advances in medicine, sanitation, nutrition, and technology have dramatically extended human lifespans. A retirement plan based only on today’s averages may underestimate the possibility that future retirees could live significantly longer than previous generations. Continued breakthroughs in areas such as biotechnology, disease prevention, and personalized medicine could further extend healthy lifespans. For retirees, this means planning for a longer time horizon is not simply a conservative assumption — it may be an essential part of building a financially resilient retirement strategy and plan.
Longevity Doesn't Act Alone
One of the biggest mistakes retirees make is viewing retirement risks independently. In reality, they interact and compound each other.
Retirement risks rarely occur one at a time. A long retirement increases the likelihood that you'll experience inflation, bear markets, tax law changes, healthcare expenses, and other challenges. The objective isn't to eliminate these risks — it is to build a retirement plan resilient enough to withstand them when they occur together.
Imagine four different retirees.
Scenario 1
You retire.
Markets perform well.
Inflation remains low.
You live to 82.
Retirement is relatively straightforward and your portfolio lasts as long as you do.
Scenario 2
You live to 98.
Markets perform well.
Inflation remains low.
Now your portfolio must support an additional 16 years of spending, resulting in a higher risk of prematurely running out of money.
Scenario 3
You retire into a major bear market.
Your portfolio declines early.
You recover eventually.
You die at 82.
As discussed in Part 1 of this series, sequence of returns risk creates stress, but time limits the damage. Your portfolio probably survives as long as you do.
Scenario 4
You retire just before a severe bear market.
Inflation remains elevated for several years.
You live to 98.
This is where risks compound.
Early portfolio losses reduce future compounding. Inflation increases annual withdrawals. Longevity extends those withdrawals over many additional years.
None of these risks is catastrophic by itself. Together they can become much more challenging. Unless your withdrawal rate is particularly conservative you have a much higher risk of prematurely running out of money.
This is why retirement planning should focus on building resilience rather than optimizing for a single forecast.
How Longevity Affects Withdrawal Rates
Longevity changes one of the most important variables in retirement planning: the sustainable withdrawal rate.
Consider two retirees with identical $1 million portfolios. If one plans for a 20-year retirement and the other plans for 35 years, the second retiree generally needs a lower withdrawal rate because the portfolio must continue generating income for much longer. Simply extending the retirement horizon by 10–15 years can materially change what is considered a sustainable withdrawal strategy. This is one reason why many financial planners test retirement plans over 30 to 35 years rather than using average life expectancy.
Extending the planning horizon typically means:
Lower sustainable withdrawal rates
Greater reliance on investment growth
Larger cash reserve needs
Increased importance of inflation protection (as discussed in Part 2 of this series)
Living longer is one of life's greatest blessings. Financing a longer retirement simply requires more thoughtful planning.
The graphic above is conceptual. It illustrates that uncertainty compounds over longer retirements rather than predicting when any particular event will occur. The longer your retirement lasts, the wider the range of possible financial outcomes becomes. A resilient retirement plan isn't designed for one forecast — it is designed to remain successful across many plausible futures.
How Can You Reduce Longevity Risk?
No strategy eliminates longevity risk completely. Instead, the goal is to build multiple layers of protection.
Maximize Social Security
Because Social Security payments are adjusted annually for inflation and continue for life, delaying benefits effectively purchases a larger inflation-adjusted lifetime income stream that cannot be outlived. It also protects the surviving spouse through a larger survivor benefit. Delaying claiming Social Security benefits until age 70 — at least for the higher earner of a married couple — is the recommended strategy for most healthy people. Read our guide to claiming Social Security for more insights.
Consider Lifetime Annuities
Immediate annuities and deferred income annuities can transfer part of longevity risk to an insurance company. While they reduce liquidity, they can provide a guaranteed stream of lifetime income regardless of how long you live. Although commercially available annuities do not feature true cost-of-living increases tied to CPI, there are annuities available with a fixed annual cost-of-living adjustment which would mitigate both longevity risk and inflation risk (to some degree).
Maintain Exposure to Growth Assets
Many retirees become overly conservative after retirement. Ironically, portfolios invested too heavily in cash and bonds may struggle to keep pace with inflation over multi-decade retirements. Maintaining an appropriate allocation to equities can improve the likelihood that your portfolio continues growing throughout retirement.
Diversify Across Risk Factors
Diversification isn't simply about owning many investments. It's about owning assets that respond differently to changing economic conditions. The longer your retirement lasts, the greater the chance you'll experience bull markets, bear markets, inflationary periods, recessions, and changing interest rates. Combining equities, TIPS, managed futures, real assets, and other complementary asset classes may improve your portfolio's ability to adapt to decades of changing conditions.
Work Longer, If Possible
Even one or two additional working years can significantly strengthen a retirement plan.
Working longer:
Increases savings
Delays portfolio withdrawals
Shortens retirement
May increase Social Security benefits
This combination can meaningfully improve retirement sustainability.
Maintain Spending Flexibility
Retirees who maintain flexibility in when and how they spend often place less strain on their portfolios than those who assume spending will remain constant every year. Planning for a realistic spending pattern — not simply a fixed inflation-adjusted amount — can improve retirement sustainability.
Retirees who can modestly reduce spending after poor market returns generally have much greater odds of sustaining their portfolios over long retirements.
Rigid spending plans create fragility. Flexible spending increases resilience.
Read our guide to flexible spending and withdrawal strategies for more insights on this topic.
Revisit Your Plan Regularly
Longevity is uncertain.
Investment returns are uncertain.
Inflation is uncertain.
Retirement planning should not be a one-time event.
Periodic reviews allow you to adjust as circumstances change.
The Bottom Line
Living a long life is something most of us hope for. Financially, however, it requires preparing for a retirement that could last far longer than the average.
The greatest threat isn't simply living to age 95. The greatest financial threat isn't simply living to age 95. It's living to age 95 after experiencing inflation, bear markets, rising healthcare costs, or poor investment returns earlier in retirement.
Rather than asking,
"How long do I expect to live?"
Ask,
"If I live to 95 — or even 100 — will my retirement plan still provide the income and flexibility I need?"
That single question may be one of the most important you'll ever ask.
Retirement planning isn't about preparing for the average future. It's about preparing for a future that may be far better—or far longer—than average.
A retirement plan is only as strong as the assumptions it's built on. One of the most important assumptions is how long your savings may need to last—and many retirees unknowingly plan for a shorter retirement than they may actually experience. If you're unsure whether your portfolio, withdrawal strategy, and guaranteed income sources are designed to support a retirement that could last 30 years or more, I'd be happy to help. Schedule a complimentary Retirement Resilience Review, and together we'll evaluate how your plan performs under a range of longevity, inflation, and market scenarios so you can retire with greater confidence, no matter how long your retirement lasts. Visit www.flourishingpathfinancial.com/book-online to schedule a free Introductory Consultation.
Next in the Retirement Risk Management Series: How to reduce the impact of Market Crash Risk on your retirement.
Author: John Macy, MBA, RICP®
John Macy is a professional financial coach and the founder of FlourishingPath Financial Coaching. With over six years of experience as a financial coach, John helps pre-retirees and retirees design resilient portfolios and income streams for their next act. Read his full story here.
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