Longevity Risk

Longevity Risk — Live Long and Prosper


Longevity Risk — Live Long and Prosper

It may seem pointless to estimate your lifespan since you have so little control over the actual timing. But projecting how long you may live according to the best available information is a critical part of retirement planning. Having a lifespan estimate will allow you to calculate how much you can safely withdraw from your savings every month and be reasonably sure that you won’t outlive your money. It can also prevent you from being overly cautious and possibly denying yourself the  ability to enhance your lifestyle.

Estimating your lifespan increases your ability to manage your income in retirement.

Will it last?

How quickly your retirement savings may diminish hinges on several factors, and they all influence one another:

  • How much you’ve saved — More is obviously better. The bigger your nest egg, the more flexibility you have to take larger or more frequent withdrawals, while your remaining balance has the potential to generate returns thanks to the power of compounding.
  • Your average investment return — Higher is better, but once you’re retired and living on a fixed income, you’ll want to ensure that your investment risk and asset allocation are appropriate. That may mean aiming for more modest investment returns, but at least enough to outrun the inflation rate.
  • Your lifespan — Most people would agree longer is better, provided you’re healthy and still enjoying life. But the longer you live, the more careful you need to be with your withdrawal strategy
  • Your living expenses — Creating and sticking with a retirement budget will help you manage expenses and keep them balanced with your income.
  • How much you spend — This is part of your retirement budget calculations and is one of the things you have the most control over. If money is short, reevaluate your budget and cut back on non-essential expenses.

Length versus quality

Martin Luther King famously said, “It is the quality and not the length of a man's life that counts.” If you can estimate the length of your life, you’ll be in a better position to manage your retirement income, giving you more control over the quality of your lifestyle. ING can help.