How Could Longevity Risk Affect You?

If you live longer than you expected, a number of things may happen:

To meet your living expenses, you may need to draw from your investments and savings. This could continue until very little is left, and your standard of living could decrease as you reduce your spending. Inflation may reduce the purchasing power of fixed income. Other risks, such as becoming sick or requiring long-term care, are more likely to affect you. Even if you have sufficient assets to provide for yourself during retirement, you still may risk depleting savings you had set aside to leave to your children, grandchildren, or others.

Here are some important questions you should ask yourself about longevity risk:

In your planning, did you assume that you would live to a certain age? If so, what age? Do you come from a family with long life expectancies? Even if you don't, you could still be the exception. Do (or did) any of your family members require long-term care? Have you accounted for inflation's effects on your purchasing power? Do you receive (or expect to receive) payments from Social Security? Do you receive (or expect to receive) payments from an employer defined-benefit pension plan? If so, will the payments increase with inflation? Do you have any defined-contribution plans (e.g., a 401[k] plan) that have a lifetime income payout option? Are there any other sources of guaranteed lifetime income that you receive or expect to receive in retirement? (These include lifetime income annuities or structured settlements that continue for your lifetime.) If you are not retired, when do you plan to retire? Do you plan to reduce your hours or completely stop working?