When planning for retirement, it’s important to consider all the risks, and one consideration that individuals often overlook is “longevity risk.” Longevity risk refers to the chance a person could outlive their savings. Understanding longevity and reasonably estimating the probabilities of living to various advanced ages and the risk of outliving resources are important for planning a secure retirement.
As a result of healthy lifestyles, medical advancements and scientific discoveries, it has become much more common for people these days to live into their 80s and 90s — or even their 100s! In fact, Pew Research Center writes that, according to estimates by the U.S. Census Bureau, there are about 101,000 centenarians in the U.S. in 2024, and this population could quadruple to about 422,000 in 2054.
While a long life is something most people desire, it requires planning for a longer retirement than in the past. For example, if a worker retires at 67, planning for a 20-year retirement may not be enough, and if they live to be in their 90s, or even past 100, they could outlive their savings or end up with fewer assets to leave their heirs.
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People planning for retirement should take steps to ensure assets last their entire life. For instance, if there is a significant chance of living to be 90 years or older, planning for money to last until age 90, or even longer, is probably a good idea. Additionally, couples should plan far enough ahead to support both members, as well as consider the amount of money they would like to leave to surviving family members after they pass away.
According to a 2022 survey by the Pension Research Council, having information about longevity can help people make better financial decisions for their retirement. But how can individuals reasonably estimate the probability of living to 90 or even 100?
Calculating longevity probabilities
Tools like longevity illustrators are valuable retirement planning resources. To better help individuals plan for various outcomes, The American Academy of Actuaries and the Society of Actuaries (SOA) created the free online resource Actuaries Longevity Illustrator (ALI) for U.S. residents, and the SOA Research Institute developed the International Longevity Illustrator, also free, for residents in Canada, Singapore and Hong Kong.
These tools help estimate the probabilities of how long individuals and couples might live, providing users with a clearer perspective on their potential longevity. Instead of a single estimated life expectancy, which is of limited use when planning for retirement, longevity illustrators provide probabilities of living to various advanced ages based on the information entered. For couples, who have an even larger chance that at least one of them will live to 90, the tool also provides the probabilities of both individuals living to various advanced ages.
The longevity illustrators ask users to input basic information and calculate longevity based on several variables, including age, sex and general health.
For example, an illustrator might indicate that a non-smoking, 50-year-old female in excellent health who plans on retiring at 67 will have, at the time of her retirement, a 71% chance of living to 87, a 49% chance of living to 92 and an 8% chance of living to 102. The ALI will also show her “planning horizon,” or the probability of living a certain number of years starting from her retirement age. For instance, it might inform her that she has a 50% chance of living 24 years after retiring and a 10% chance of living 33 more years.
Both longevity illustrators have the option for couples to enter information, and the results include the probabilities of both members of the couple or one member living for various lengths of time.
Discovering the probabilities of living to certain ages, either as an individual, as a couple or as a surviving member of a couple, can help with decisions about retirement planning horizons, which can protect a person from outliving their assets.
Other guides for retirement security
After taking into consideration longevity risks and the chances of living to advanced ages, the next step is to create a strategy for a secure retirement.
The SOA Research Institute’s retirement risk chart, Managing Post-Retirement Risks: Strategies for a Secure Retirement, offers practical information to plan for longevity, including:
- Delaying Social Security to maximize the benefit
- Investing in deferred annuity products that provide an income once a person reaches a certain age
- Purchasing longevity insurance, which is an income annuity whose initial payout is delayed, sometimes into deep old age
- Obtaining a retirement asset that offers regular withdrawals that will gradually use assets
In addition to addressing longevity, the guide also includes a chart outlining other retirement risks, along with strategies to manage them.
For more information on planning for a secure retirement, please explore these resources created by the SOA Research Institute:
- Managing Retirement Decisions. Twelve issue briefs written in everyday language that tackle a variety of retirement decisions with practical considerations and advice.
- Aging and Retirement Consumer-Focused Material. Resources to help consumers manage retirement decisions and navigate post-retirement risks.
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- Make Longevity Risk Part of Your Retirement Plan
- A 10-Year Retirement Planning Checklist
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