Longevity Risk Requires Accurate Measurements, Adequate Solutions

As retirees live longer, financial advisers will increasingly need to help their clients understand the financial side of “longevity fitness.” Last year, a study by the National Council on Aging found that the poorest 20% of older adults died an average of nine years sooner than the richest 10%, and as income levels grew, mortality rates declined. Affluent seniors with higher standards of living therefore risk stretching their life savings beyond their limits, experts say.

“Longevity risk is a likely reality,” wrote Josh Fudge, national sales manager at Shelton Capital Management, in an email. “While market volatility grabs attention, the bigger risk is running out of money too soon.”

Phil Parker, a partner in and wealth manager at Everhart Advisors, says advisers can use mortality tables to get a rough idea of clients’ life expectancies and can use financial planning software to stress-test portfolios.

Parker wants his clients to err on the side of caution and use a default target of age 90. Clients who could potentially live longer are encouraged to adjust their retirement plans—as he recently did with a couple whose parents all lived until their mid-90s.

“If we start to see that there would be a risk of longevity—which is funny to call it a risk—but when we expect them to possibly live beyond a typical [age], we would definitely want to plan for that,” Parker says.

Bryan Peebles, managing director at Strategic Retirement Partners, encourages clients to plan out to age 95 and even consider protecting assets through age 105.

“Mortality tables haven’t caught up there yet, but when you’re looking at high-income earners, it’s not out of the realm of possibility,” Peebles says. “I’d much rather a client have money left over to pass on … than say, ‘I lived too long, what do I do?’”

Prepare for a Range

While many online tools provide life expectancy as a single number, the Actuaries Longevity Illustrator, developed by the American Academy of Actuaries and the Society of Actuaries, is designed to help users think of lifespan as a range of possibilities. R. Dale Hall, the SOA’s managing director of research, says many individual factors can impact lifespan, including genetics, family history, biological sex, health status, exercise, smoking, access to medical care, and geographic location—particularly urban residence.

To use the Longevity Illustrator, users enter their age, sex, smoking status and overall health. Calculations based on the Social Security Administration’s mortality tables then produce a probability curve of a person’s lifespan. Couples can also see the chances of one or both of them reaching an advanced age.

“Instead of, ‘How long should I expect to live?’ I think the better question is, ‘How long should I prepare to live?’” Hall says. Rather than falling back on average life expectancies, Hall says he hopes people use his longevity calculator to grasp, as he phrases it, “life preparency,” including figures such as the age they have a 15% or 20% chance of reaching.

Hall practices what he preaches: At the start of each new year, he and his wife use the Actuaries Longevity Illustrator on themselves to reassess their longevity risk. He says it is a “good reminder” to see how, given medical advancements, he has a quantifiable likelihood of living longer than his parents did.

“There’s a pretty strong chance that both of us will survive to age 90,” Hall says. “[We] make sure we have a plan and a path forward, and I think by doing that, we feel much more confident.”

Different Horizons

Given the growing concern related to longevity risk, it is perhaps unsurprising that sales of annuities roughly doubled between 2020 and 2025. Variable annuities are especially popular, with promises of fixed percentages and guaranteed income streams. However, these annuities have their own built-in longevity risk, as they can slowly devalue with inflation.

“Even at a 3%, relatively low inflation rate, that money’s only going to be worth [about] half as much in 24 years,” says Kelly LaVigne, a senior director for advanced markets at Allianz Life Financial Services. His company sells Allianz Lifetime Income+, a fixed-index annuity with guaranteed lifetime withdrawal benefits, in which account holders receive annual payments from the annuity, even if investment losses have reduced the value of the account.

Scott Colangelo, chairman of and managing partner in Prime Capital Financial—part of the consortium behind Income America’s 5ForLife retirement product, which has a collective investment trust for employer-provided retirement plans that also offers GLWBs through contracts with multiple third-party insurers—passionately argues that income products need to be tied to the market to outpace inflation.

“Say you’re going to be retired for 30 years. Do you think your money is going to be better off in a blend of stocks and bonds, or do you think it’d be better in a money market-type account?” Colangelo asks.

Parker does not like annuities for his clients, saying they have higher costs and lower gains, but he wants his clients to bucket their market investments by timeframe, or “time segmentation.” Clients are encouraged to be more conservative with short-term income for the next six or eight years, but they can be more aggressive with money planned to be used over the next couple of decades.

“The main driver is going to be the time horizon,” Parker says. “Then there are conversations with the client [about] their stomach for risk and the temporary drops in the market. My job would be to educate them through that.”

High-earning clients can often leave inheritance for family members, and Parker thinks those assets should remain invested in the market. He says it is helpful to think of the investments’ time horizon extending beyond the life of the client into the lives of the heirs, and therefore the investments could be more aggressive.

No matter what people choose for their retirement income strategy, advisers recommend a certain amount of flexibility in approach. Peebles says savers need to revisit their retirement plans at least once or twice per year, if not more often, to respond to sudden changes, like health issues or market volatility, or to reflect on more gradual shifts in priorities.

“It’s not supposed to be a set-and-forget strategy,” Peebles says. “As you continue to age, as your goals continue to change, the plan strategy needs to evolve with you.”