Planning for retirement is like packing for a long hike. Your packing list might include a fire starter, a compass, a mini first-aid kit and bear spray. Of course, you hope some of those items won’t be necessary, but you need to bring them just in case.
When preparing for your golden years, living longer than expected is a commonly forgotten “just in case” scenario. Life expectancies are getting longer and the number of centenarians is rapidly growing, which means you could be retired for longer than you think.
Longevity risk — the possibility of outliving your retirement savings — can derail your retirement unless you take proactive steps to ensure your money lasts as long as you do.
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What's the risk of living longer?
Longevity risk can damage your retirement plan in several ways. If you live longer than expected, you could deplete your savings because of increased expenses or an unsustainable withdrawal strategy. The traditional 4% rule may not work if you end up paying for a 20- or 30-year retirement.
Living longer is often a risk multiplier, meaning you’re more likely to face additional risks, such as inflation, health care costs and market volatility. Inflation depletes your purchasing power over time, which means your retirement expenses will continue to rise as you age.
Your nest egg needs to be large enough to cover your needs, no matter how long you are exposed to inflation.
The older you get, the more expensive your health care tends to get. It’s estimated that 80% of 65-year-olds will eventually need some type of long-term care during their lifetimes.
Unless you are prepared to cover the cost of a nursing home or medication for a chronic illness, your savings could drain quickly.
Wall Street constantly experiences upswings and downturns, and a longer lifespan exposes you to more market volatility.
If the market falls while you’re retired and living off of your nest egg, you could have a hard time recovering from it because you do not have much time to gain back what was lost.
Why are retirees unprepared?
Longevity risk is a silent threat to your retirement because so few people think about how their life expectancy will affect their plan. Many underestimate how long they’ll live, but would you rather have money left over at the end of your life or run out when you need it most?
Some retirees face longevity risk because they simply have not saved enough money for their golden years.
Even if you have a healthy nest egg, a poor withdrawal strategy or an overly conservative investment strategy can also lead to insufficient savings.
Others rely too heavily on Social Security or lack an awareness of how expensive health care is. In 2025, the median cost of a private room in a nursing home is over $10,000 per month, and inflation will likely drive that cost even higher over time.
Age-proof your plan
A comprehensive retirement plan can help ensure that living longer than you expect is a blessing, not a financial curse.
Proactive retirement planning is meant to reduce longevity risk and increase your security in retirement, which will help you withstand potential pitfalls and have more peace-of-mind to enjoy your golden years.
Several strategies can help reduce your risk of running out of money in retirement:
Make a tax-efficient withdrawal strategy. This will help ensure your nest egg is not drained too quickly. When creating your withdrawal strategy, consider the tax liability of your accounts and your individual spending needs, rather than focusing on a fixed percentage, like the 4% rule.
Add diversity and guaranteed income. Even if you don’t have a pension, there are ways to create dependable income streams.
For example, certain annuities can provide monthly income in addition to your Social Security payments. These types of lifetime income sources will help sustain your savings and add diversity to your portfolio, which can provide even more security in retirement.
Prepare for long-term care. Although you can’t know how much health care will cost in retirement, building up your health savings account (HSA) or considering long-term care insurance can help ease the burden.
Money in an HSA can be used tax-free for medical expenses. After age 65, your HSA funds can be used for non-medical purposes, as well, but your withdrawals are subject to ordinary income tax.
Review your plan often. As you age, your needs, goals and potential risks will change. I recommend meeting regularly with a financial adviser who can help you spot potential pitfalls and make adjustments when necessary.
Longevity risk may not be completely avoidable, but it is manageable with a proactive strategy. No matter how long your retirement lasts, it’s important to have a plan that minimizes your tax liability, provides sustainable income and protects against unexpected costs.
Addressing longevity risk early and preparing for the “just in case” scenarios will help you confidently enjoy your golden years knowing your nest egg is built to last.
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- Which Type of Long-Term Care Insurance Works for You?
- Annuities: What They Are and How They Work
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