“Longevity Risk” in Retirement

Longevity means “long life” or “length of life.” Longevity risk is the risk that someone will outlive their money or available income—something we are very concerned about at Alpha Beta Gamma Wealth Management.

It’s a fact that people are living longer. A woman who has reached age 65 can expect to live to age 86-1/2, while a 65-year-old man can anticipate living to age 84 on average. One out of every three 65-year-olds living today will live past the age of 90, and one out of seven will live past 95.1

Longevity means people may be living in retirement for 20 or 30 years, or even longer.

From a financial point of view, living a long time can drastically affect many of your retirement costs, impacting and presenting a “risk” to many different items in your budget—right at the time of life when you will likely be worried about running out of money. That’s why retirement planning is so important.

Let’s examine some of the issues affected by longevity:

  1. Inflation

Prices will continue to get higher through the years, decreasing the retiree’s purchasing power. In fact, inflation is part of the Federal Reserve’s monetary policy; they target a 2% inflation rate.2

It goes without saying that the longer you live, the more you will spend on consumer goods and living expenses.

While it’s true that if the Consumer Price Index (CPI) rises in a given year, retirees sometimes get a COLA (Cost-of-Living Adjustment) increase in their Social Security benefit check, you’d best not count on that. There have been a number of years where there has been no COLA at all.

  1. Health Care Costs

Health care expenses are a huge chunk of any retirement budget—even with Medicare. A healthy 65-year-old couple can expect to spend approximately $285,0003 to pay for health care expenses not covered by Medicare, including dental, vision, co-pays, deductibles and out-of-pocket costs.

  1. Incapacitation

Your odds of becoming incapacitated increase with age, which could lead to the need for nursing care. In fact, on average, 70% of people over 65 will end up needing some form of assistance.4

It’s important for you to know that Medicare does not cover long-term care at all. This is a common misconception. Yes, you can qualify for Medicaid to cover your nursing home stay—if you spend down all of your assets to poverty level.

Without a plan for long-term care costs, a healthy spouse can be bankrupted or heirs left with nothing in order to qualify for Medicaid because the average yearly cost of a semi-private room in a nursing facility is $89,292.5

There are new strategies that can help with this, depending on your situation. It is critical to have a plan.

  1. Excess Withdrawal / Inadequate Income

If your portfolio isn’t structured properly to provide enough income for a long life, you really are at risk of running out of money. Unexpected family expenses or needing to withdraw money during a market downturn can affect your nest egg negatively for the long term.

The death of a spouse is also a risk to your income, as you will only receive one Social Security check instead of two (the larger one.)


The point of this article is not to inspire fear, but to inspire early, realistic retirement planning. Don’t worry about the future–let’s make some solid plans. Call us at (866) 837-0999. Let’s sit down together to review your unique financial situation, needs and goals. Together, we can create a retirement plan that can help mitigate your risks—including longevity risk.


1 “Benefits Planner | Life Expectancy.” https://www.ssa.gov/planners/lifeexpectancy.html (accessed May 28, 2019).
2 “The Fed’s Inflation Target: Why 2 Percent?” https://www.stlouisfed.org/open-vault/2019/january/fed-inflation-target-2-percent (accessed May 28, 2019).
3 “How to plan for rising health care costs.” https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs (accessed May 28, 2019).
4 “How Much Care Will You Need?” https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html (accessed May 28, 2019).
5 “Cost of Care Survey 2018.”  https://www.genworth.com/aging-and-you/finances/cost-of-care.html (accessed May 28, 2019).