The Retirement Risk No One Likes to Talk About: You, Still Here
Living longer is the biggest retirement risk most investors still ignore. Does your retirement plan assume you'll live into your mid-90s and beyond? If not, this is what you need to do.
Most retirement plans are built on a quiet assumption: You won't be around too long, so you'll follow a certain framework.
- Work to accumulate assets
- Retire at age 65
- Plan to live to 85 or 90
- Withdraw at 4%
- Hope the markets cooperate
That framework didn't appear by accident. For decades, financial advisers have served their clients as accumulation experts. The goal was to grow assets, manage risk and improve tax efficiency. That approach enabled families to build substantial retirement wealth.
But retirement isn't an accumulation problem. It's a decumulation problem, in which the central question shifts from "How large can this portfolio grow?" to "How long must this portfolio last?"
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What makes that shift difficult is the introduction of a new uncertainty. Not only must the unpredictability of markets, inflation and the economy be managed, but also the uncertainty of how long retirement will last. Death doesn't arrive on schedule, and it doesn't respect averages.
Increasingly, the pathway is longer. What was once a statistical outlier — living to 90, 95 or 100 — is becoming common.
Insurance carriers know this better than anyone. When pricing lifetime income annuities, they don't rely on general population life expectancy. They use the Society of Actuaries' Individual Annuity Mortality tables, which reflect people living longer than average, and adjust them for ongoing mortality improvement.
Actuarial assumptions used in pricing lifetime annuities suggest that for a healthy 65-year-old couple, there is close to a 50% probability that at least one spouse will live to age 95.
Nearly a coin flip
Yet, many retirement projections still stop at 85 or 90 because that's where the software defaults or where the client feels comfortable. Extend the timeline to 95 or 100, and the math changes.
Plans that appeared solid over 20 or 25 years often look far more fragile over 30 or 35 years. That additional decade of withdrawals, compounded by inflation and market volatility, quietly increases pressure on the portfolio.
If your retirement plan only works if you die on schedule, it isn't a plan — it's a bet.
Why longevity risk breaks 'well-built' plans
Consider a retiree with a $1.5 million portfolio withdrawing 4% annually, or $60,000, adjusted for inflation. In the early years, particularly if markets cooperate, the plan can look disciplined and sustainable. Account balances may even rise during strong markets, reinforcing confidence.
For a couple retiring at 65, that portfolio may need to support income into their mid-90s, potentially three decades or more.
The vulnerability often emerges later.
Over a 30 to 35-year horizon, even a few modestly negative market years early in retirement can permanently alter the portfolio's trajectory. This is what sequence of returns risk looks like: Withdrawals during downturns lock in losses and leave less capital to recover when markets rebound.
Layer in higher-than-expected inflation, rising health care costs and required minimum distributions pushing taxable income upward in later decades, and the margin for error narrows further.
Longevity risk differs from market volatility in one critical way. Market declines are visible and often temporary. Longevity is gradual and cumulative. Each additional year of life is another year the portfolio must produce income, regardless of market conditions.
A 25-year retirement is one mathematical exercise, whereas a 35-year retirement is another entirely.
Three adjustments to improve retirement durability
Longevity risk is not mysterious. It can be addressed with deliberate planning, shifting the focus from maximizing returns to building durability.
Here are three practical adjustments retirees can make now.
1. Plan to age 95 or beyond.
Run retirement projections to at least age 95 for both spouses, and consider testing scenarios to 100. If the plan fails in the early 90s, that's not a minor gap; it's a structural weakness. Being broke at 93 is not an option for most retirees.
Ask your adviser to model conservative return assumptions and realistic inflation rates. Historical averages provide useful context, but they shouldn't be treated as guarantees. Extending the planning horizon forces the model to confront duration risk directly.
If you don't live that long, remaining assets become part of your legacy. If you do, you preserve your independence and avoid late-life financial stress.
2. Separate essential income from market-dependent income.
Not all retirement spending is discretionary. Housing, food, utilities and core health care expenses are foundational. Start by calculating your essential monthly expenses and determining how much of that can be covered by reliable income sources such as Social Security, pensions or other guaranteed streams.
When core expenses are supported by predictable income, the investment portfolio can be positioned to fund discretionary spending and long-term growth. This separation reduces the psychological strain of market downturns and lowers the likelihood that temporary volatility leads to permanent lifestyle reductions.
It also reframes the goal of retirement planning. The objective is not simply to build the largest possible portfolio. It's to secure a reliable income for as long as you live.
3. Build a late-life strategy.
Many retirement plans emphasize the first decade after work ends, when travel and lifestyle goals are prominent. Far fewer explicitly address the financial realities of the later years.
Health care costs tend to rise with age. Long-term care becomes a meaningful risk. Required minimum distributions in your 70s and beyond can increase taxable income and, in turn, Medicare premiums.
At the same time, flexibility to adjust spending or re-enter the workforce goes away. We are simply more vulnerable as we age, and durability becomes a key feature of retirement planning.
A durable plan anticipates this phase. That may include proactive tax planning in your 60s to manage future required distributions, gradual adjustments to asset allocation as risk tolerance changes, and explicit strategies to fund potential care needs.
Revisiting the plan every few years is a must to ensure it adapts to evolving markets, tax laws, and personal circumstances.
The risk that doesn't make headlines
Markets will fluctuate. Interest rates will rise and fall. Political and economic headlines will create periodic anxiety. But the most underappreciated retirement risk is duration.
Longevity is a gift. Financially, it's also a structural shift that demands honest planning. The question is not simply whether your portfolio can grow. It is whether it can endure for as long as you do.
A successful retirement plan is not the one that performs best in the first decade. It is the one that still works in the third — when durability matters most.
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