Longevity risk is the possibility of outliving your retirement savings – a growing concern as people live longer than ever. Advances in healthcare and lifestyle changes mean many retirees may need their savings to last 30 years or more. This risk is amplified by rising healthcare costs, inflation, and the shift from pensions to 401(k) plans, leaving individuals responsible for managing their retirement funds.
Key Takeaways
- Longevity risk in retirement is the risk that you live longer than expected and your savings, income, or financial plan fail to last for the full length of your lifetime.
- A combination of longer life expectancy, rising healthcare and long-term care costs, inflation, market risk, and the shift away from pensions has significantly increased longevity risk for retirees.
- Managing longevity risk is not one-size-fits-all; objective, fee-only fiduciary advice can help create sustainable withdrawal and tax strategies, particularly for women who often face longer retirements and greater financial challenges.
Planning early and consulting a fee-only fiduciary advisor can help ensure your retirement planning last as long as you do.
How Longevity Risk Affects Your Finances
Longevity risk isn’t just about living longer – it’s about ensuring your finances can keep up with those extra years. The real challenge lies in maintaining financial stability throughout an extended retirement. Here’s how a longer lifespan can put pressure on your retirement resources.
Depleted Retirement Savings
The longer you live, the more years your savings need to stretch. For example, research from the American College of Financial Services suggest that extending your retirement from 30 to 35 years increases the risk of depleting your savings by 41%, based on historical market returns. Factor in inflation and reduced returns, and that risk can skyrocket by over 300%.
A major issue is underestimating life expectancy. Only 48% of Americans factor their potential lifespan into their savings and investment decisions. Relying on average life expectancy alone can leave you financially short.
"Too many people underestimate how long they'll live - and that blind spot can seriously undermine their financial security," says Michael Finke, Professor of Wealth Management at The American College of Financial Services. [1]
Interestingly, those who are financially prepared for retirement are often the ones who live the longest. Wealth and good health are closely tied to lower mortality rates. So, if you’ve saved diligently and stayed healthy, you’re statistically more likely to reach your 90s or beyond. This extended lifespan means your savings need to last even longer. It’s no wonder 64% of Americans worry more about running out of money in retirement than about death itself.
Higher Healthcare and Long-Term Care Costs
Healthcare costs are one of the most significant financial uncertainties in retirement. Nearly 70% of people turning 65 today will need some form of long-term care during their lifetime. The costs can be staggering – around 60% of older adults can’t afford even two years of in-home care.
Traditional Medicare doesn’t cover most long-term care costs, leaving retirees to pay out of pocket. And as you age, the chances of developing multiple health issues increase, forcing you to allocate more of your income toward medical expenses. Healthcare costs have risen faster than general inflation, and Medicare premiums continue to climb, putting even more strain on fixed retirement budgets.
The numbers are sobering: 80% of older adult households – about 34 million Americans – would struggle to recover from a major financial shock, such as a serious illness or the need for long-term care. Wealth disparities also play a role, as those in the bottom 20% of wealth holders live, on average, nine fewer years than those in the top 20%.
Beyond healthcare costs, retirees face additional challenges from inflation and market fluctuations.
Inflation and Market Volatility
Inflation and market volatility create a risky combination for retirees. Inflation in retirement gradually erodes your purchasing power, forcing you to withdraw more money to maintain your lifestyle. At the same time, market volatility can shrink your portfolio, especially if you’re withdrawing funds during a downturn.
Historically, the stock market has experienced a 20% or greater decline roughly every eight years over the past 90 years. If a major downturn hits early in your retirement, it can permanently damage your portfolio. This scenario is known as sequence-of-returns risk – selling assets at lower prices during a market dip can make it nearly impossible for your portfolio to recover.
For example, a 10% annual withdrawal rate can deplete your savings in just eight years. In contrast, a 4% inflation-adjusted withdrawal rate can typically last 30 years. However, being too conservative with your investments to avoid market volatility can also backfire. A portfolio that doesn’t grow enough may fail to keep up with inflation, leaving you short on funds over a 20 to 30-year retirement.
"Being overly cautious with your portfolio may feel safer in the short term, but an allocation that’s too conservative can increase the risk that your retirement savings won’t last as long as you need them to." – Danny Beckwith, Senior Advisor at First Financial Consulting
These financial hurdles highlight why comprehensive planning is essential when addressing longevity risk in retirement. By understanding these challenges, you can better prepare for the financial demands of a longer life.
What Causes Longevity Risk
Understanding the factors behind longevity risk is key to preparing for it. Three main drivers have made managing retirement finances more challenging than ever.
Longer Life Expectancy
People in the United States are living much longer than previous generations. In 2025, the average life expectancy in the U.S. reached 79.4 years. But if you make it to age 65, your odds of living even longer improve significantly – men can expect to live to 75.8 years, while women typically reach 81.1 years. Since 1940, life expectancy at age 65 has increased by over six years for men and about seven years for women.
The population over 85 is also growing rapidly, projected to double within the next 20 years. By 2060, the number of people aged 65 and older will hit 95 million, a sharp rise from 56 million in 2020. This growing wave of older adults, often called the “silver tsunami,” means many retirees will need their savings to last for 25, 30, or even 35 years.
"The real risk people need to manage when investing in their future is the risk of outliving their retirement savings." – Han Yik, Head of the Institutional Investors Industry, World Economic Forum [2]
This increase in life expectancy also magnifies the challenges of moving away from traditional pensions.
The Shift from Pensions to 401(k) Plans
Longer lifespans aren’t the only issue. Changes in how retirement income is structured have added to the problem. Decades ago, about half of the U.S. workforce had access to defined-benefit pension plans. These pensions placed the responsibility for managing longevity risk on employers.
Today, most workers depend on defined-contribution plans like 401(k)s, which shift the entire responsibility to individuals. Now, you must predict how long you’ll live, determine how much to save, and carefully plan withdrawals to ensure your money lasts. 401(k)s are different from pensions in that they don’t offer lifetime income guarantees, leaving retirees exposed to risks like market downturns and inflation during what could be a lengthy retirement.
This is a high-stakes situation – around 15% of women and 12% of men rely on Social Security for 90% or more of their retirement income. Without the stability of a pension, many retirees face significant challenges in stretching their savings over an uncertain number of years.
Gender Differences in Longevity
Longevity risk affects women in unique ways. In 2022, a 65-year-old woman had a nearly 33% chance of living to age 90. Financial experts at Schwab suggest women plan for a lifespan of at least 94 years, compared to 92 years for men.
Living longer comes with extra financial pressures. Women are more likely to outlive their male partners, often leaving them to manage retirement funds alone and with less household income. Single women, in particular, face added difficulties due to their longer life expectancy and typically lower lifetime savings. Additionally, a longer life increases the likelihood of developing chronic health conditions that require costly long-term care – a challenge women are statistically more likely to face.
Recognizing these demographic trends is essential for designing retirement strategies that address longevity risk. Longer lifespans, the decline of traditional pensions, and gender disparities combine to create a challenging landscape. The good news? By understanding these factors, you can take steps to better secure your financial future.
How to Manage Longevity Risk
Planning for a long retirement means preparing for the possibility of outliving your savings. Here are four strategies to help protect your retirement income and ensure financial stability.
Diversify Your Investments
A diversified investment portfolio is a key defense against running out of money. One effective method is the bucket strategy, which divides your assets into three categories based on time horizons:
- Bucket 1: Holds 1–2 years of expenses in cash or money market funds for immediate needs.
- Bucket 2: Covers 3–5 years of income with bonds and dividend-paying stocks.
- Bucket 3: Focuses on long-term growth through equities and high-yield bonds.
If you have guaranteed income sources like Social Security or annuities, you can afford to allocate more of your portfolio to stocks. This approach can help your savings grow faster and keep up with inflation, especially during a retirement that might span 30 years or more. Jessica Ruggles, Corporate Vice President at New York Life, explains:
"A more aggressive allocation can give you the growth you need to offset longevity and inflation risk."
Tax-efficient withdrawal strategies are another way to stretch your savings. For example, you might prioritize withdrawing from Roth IRAs during high-income years and Traditional IRAs during lower-income years to minimize taxes. Knowing the most tax-efficient withdrawal order and combining these tactics with a diversified portfolio strengthens your financial foundation.
Maximize Social Security Benefits
While investments address market risks, learning to maximizing Social Security benefits provides a stable income base. The timing of when you claim benefits has a big impact on how much you receive. For every year you delay claiming beyond your full retirement age (usually 67), your monthly benefit increases by about 8%, up to age 70. For example, the difference between claiming at 62 versus waiting until 70 can be 70% or more.
As of November 2023, the average monthly Social Security benefit was $1,710.78. However, by delaying until age 70, you could qualify for the maximum monthly payment, which was $4,873 in 2024. This higher benefit is especially valuable because it adjusts for inflation, providing a safeguard against rising costs.
If you’re in good health and have other assets to cover expenses in the meantime, delaying Social Security can be one of the smartest financial moves you make.
Use Lifetime Income Products
For additional income security, consider lifetime income products like annuities. These can act as a “personal pension,” guaranteeing income for life. For instance, investing $100,000 in an immediate annuity at age 65 might provide around $490 per month for men and slightly less for women.
If you’re worried about running out of funds later in life, a deferred income annuity (also known as longevity insurance) could be a good option. A $100,000 investment at age 65 could provide $1,673 per month for a man or $1,466 per month for a woman starting at age 80. These higher payouts are designed to cover expenses during your later years, when you may be most vulnerable.
Chris Siraganian, Senior Advisor at First Financial Consulting, highlights the potential benefit of these products along with an important caveat:
"As lifespans increase, income annuities offer significant potential benefits in certain situations. To serve as an effective hedge, internal annuity costs must be minimized, the returns optimized, and the structure matched to the client's specific needs. There are a number of commission-free annuities that can be very helpful, but there is a universe of high-cost, commissioned products that need to be avoided at all costs. In the right scenario and done right, annuities reduce the need to rely solely on Social Security towards the end of your life."
To make the most of annuities, use them to cover essential expenses like housing, healthcare, and food, while keeping the rest of your portfolio invested for growth. Compare rates from different providers and choose an insurer with a strong financial rating, such as an AM Best rating of “A” or higher.
Maintain Emergency Funds
Even with a solid retirement plan, unexpected expenses can arise. Medical emergencies, home repairs, or family needs can quickly deplete your savings if you’re not prepared. That’s why maintaining an emergency fund is critical.
Aim to keep 6–12 months of living expenses in a liquid account that’s separate from your investment portfolio. This buffer can prevent you from selling investments during a market downturn or tapping into long-term income sources prematurely. Consider this: the total cost for three years of long-term care followed by two years in a nursing home can reach approximately $365,000, and Medicare doesn’t cover these expenses.
Review your emergency fund annually and adjust it based on changes in your health, living situation, or expenses. Having this safety net in place can protect your retirement plan and provide peace of mind when life throws unexpected challenges your way.
Working with Fee-Only Fiduciary Advisors
Planning for longevity requires a strategy that ties together Social Security, tax planning, estate matters, and income protection. This coordinated approach forms the foundation for the personalized services discussed below.
What Is a Fee-Only Fiduciary Advisor?
A fee-only fiduciary advisor is legally obligated to prioritize your financial interests above all else. This standard represents the highest legal and ethical responsibility in the financial world. Unlike brokers or insurance agents who follow a “suitability” standard, fiduciaries must act in your best interest. Consumer expert Clark Howard emphasizes the importance of this distinction:
"The danger to you is so great when you hire someone who's not a fiduciary, who's not legally bound to put your interests first, that it's like going in reverse with investing." [3]
This distinction is especially critical when addressing longevity risk. Fee-only advisors don’t earn commissions or receive kickbacks from insurance companies or brokerage firms. This independence allows them to recommend strategies – like delaying Social Security or choosing low-cost annuities – based solely on what benefits you, without being influenced by sales incentives. Remarkably, fewer than 2% of U.S. financial professionals adhere to the true fiduciary standard.
Retirement Planning Services
To tackle longevity risk, fiduciary advisors develop comprehensive plans that integrate income strategies, tax-efficient withdrawals, estate planning, and insurance solutions designed to support a retirement lasting 30 years or more. Instead of relying on generic life expectancy assumptions like age 90 or 95, they tailor plan durations to factors such as your health history, genetics, and socioeconomic background.
For wealthier clients – who statistically tend to live longer – advisors often use advanced cohort mortality tables that account for potential medical advancements. For example, a healthy, non-smoking 65-year-old male might need to plan for a lifespan up to age 98, while a female might plan for age 101, to accommodate a 10% chance of reaching those ages.
Advisors also help mitigate “risk multipliers,” where longevity amplifies other financial risks like inflation or rising healthcare costs. To counter this, they build a “margin of safety” into plans by using conservative return assumptions. This ensures your strategy holds up even if future market returns fall short of historical averages. It’s a critical approach, especially since nearly two-thirds of U.S. adults fear outliving their money more than death itself.
Fee Structures Explained
Understanding how advisors charge for their services is just as important as the advice itself. Fee-only advisors offer clear and transparent pricing models, typically falling into one of three categories:
| Fee Structure | Description | Key Benefit |
|---|---|---|
| Hourly Fee | Billed for each hour of work completed | Best for focused advice on specific issues |
| Flat/Fixed Fee | A set price for a defined service or time period |
Predictable costs, but costs stay high even when the market drops |
| Percentage of AUM | A fee based on the total value of managed assets |
Aligns with the advisor's success with your portfolio's performance and management |
The hourly fee model is ideal for targeted advice, such as optimizing Social Security benefits or analyzing a deferred income annuity. Flat fees are great for comprehensive planning, offering a clear, upfront cost for services. The percentage-based model ties the advisor’s compensation to your portfolio’s growth, often including continuous monitoring and adjustments.
At First Financial Consulting, all three fee structures are available, with a $500,000 minimum asset requirement for percentage-based engagements. This flexibility ensures you can select the pricing model that best aligns with your financial situation, providing objective fiduciary advice without the conflicts of interest inherent in commission-based arrangements.
Take the Steps to Avoid Longevity Risk in Retirement
While you can’t completely avoid longevity risk, you can take steps to prepare for it. Facing the possibility of a retirement that could last 30 years or more means the responsibility for planning has shifted largely to you. With nearly two-thirds of U.S. adults more concerned about outliving their savings than death itself, the importance of this issue is hard to overstate.
To address these challenges, actionable strategies can help secure your financial future. Options like delaying Social Security benefits, maintaining some exposure to equities, incorporating lifetime income products, and accounting for rising healthcare costs can all play a role. These strategies work best when they’re customized to your circumstances.
Starting early is critical. Cognitive decline can affect decision-making later in life, so setting up legal protections, such as powers of attorney, is a smart move. Early planning also allows you to make better decisions about Social Security timing and withdrawal rates, helping safeguard your portfolio against market downturns. As discussed earlier, aligning your investments, Social Security strategy, and legal plans is essential to building a strong retirement foundation. If you want to learn more about how to manage longevity risk in retirement, use the link below to schedule an introductory meeting with one of our advisors today.
Greg Welborn is a Principal at First Financial Consulting. He has more than 35 years’ experience in providing 100% objective advice, always focusing on the client’s best interests.
Greg Welborn is a Principal at First Financial Consulting. He has more than 35 years’ experience in providing 100% objective advice, always focusing on the client’s best interests.
