Retirement Roadblocks: The Longevity Risk
LONGER LIFE = BIGGER RISK. When traveling, the longer the trip, the more fuel that is needed. In retirement, the longer the trip, the more savings that are needed. Today, Americans are living longer than ever, resulting in a retirement that can last 25, 30, or even 40 years! Living longer than planned is defined as longevity risk.
Longevity risk has often been referred to as a risk multiplier. Why? The more years spent in retirement, the greater the chance that other financial detours could come into play. For example, the risk of experiencing market volatility rises as the length of retirement increases.
HOW LONG WILL YOU LIVE?
Life expectancy is defined as the average number of years someone is expected to live. This means that some will live beyond life expectancy and some will die before life expectancy for a given age. The chart below is based on a 65-year-old.
Longevity requires a long-term view. A balance between growth and protection may be required to help ensure retirees have enough money to last through retirement. Retirees should consider whether current sources of lifetime retirement income, such as Social Security and pensions, will be sufficient, or if their retirement income strategy will require additional lifetime income sources.