What Is Longevity Risk?
Most people look forward to retirement as a positive and fulfilling stage of their lives. Everyone wants to live a long, healthy life. How can this be a bad thing?
While hoping to live a long time is fine, living longer than you expected can cause very serious problems. It can expose you to several risks, such as:
- Being unable to maintain your desired standard of living
- Having to pay increasingly expensive medical bills
- Losing purchasing power to inflation
- Requiring long-term care
These are all examples of longevity risk. Simply stated, longevity risk is the risk of an adverse consequence due to living longer than expected. Longevity risks are primarily financial, but they also affect our health, our housing, food security, and many other important areas of life.
Many people who plan their retirement assume they will live to a certain age. Often, this age is their "life expectancy," which is based on the average life span of people in the past. But life expectancy at retirement is an average. Approximately half of retirees will live longer than the stated life expectancy age. That means millions of people will be exposed to the dangers of longevity risk. To minimize these dangers, it is vital to know how longevity risk may affect you and to be prepared when the time comes.
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