Longevity Risk
Categories: Insurance
You’ve stashed away $1.2 million for retirement and now you're finally ready to quit working at age 65. You look at the actuarial tables and see that you’re supposed to live another 17 years. You do the math and find that you can spend around $70,000 a year and run out of money almost exactly 17 years from now. So you start spending at that rate, figuring you'll drop dead just as your bank account reaches zero.
Fast-forward 17 years. You’ve spent all your money and you’ve never felt better (you climbed K2 just last year). But now you’re broke.
That situation represents longevity risk.
The term refers to the risk that you’ll outlive your financial means, usually in retirement. You can hedge against this with annuities, insurance, and continuing longer-term financial planning, even deep into retirement.