Longevity Risk

Longevity risk is literally that risk that we might live too long (with its attendant problems, e.g., deteriorating health and increased medical costs), but in the financial context, it is more specifically the risk that we might live so long that we might outlive our retirement savings. With the increases in longevity due to advances in medicine, hygiene, and living standards, many more people are reaching retirement age (72–84% in the United States depending on gender—up from 54–60% in 1940) and beyond (in the United States, the number of centenarians increased 380% from 1980 to 2000). Additionally, this risk has become far more important in recent years due to the shift from defined-benefit (DB) retirement plans to defined-contribution (DC) plans: In the former, retirees receive ...