Longevity Risk

Posted September 2, 2025, By Cole Ferrier

Key Takeaways:

• Longevity Risk is the fundamental danger of outliving your assets. It is the master variable that makes all other retirement risks more challenging.

• For a healthy 65-year-old couple, there is a high probability one partner will live past age 90. Planning for an "average" life expectancy is a coin flip on your future.

• A longer retirement horizon provides a wider window for negative events—like inflation, market downturns, or health crises—to occur.

• Four of the most powerful solutions are delaying Social Security, maintaining an equity allocation for growth, transferring risk with specialized annuities, and using a flexible spending plan.

In my introductory article, we laid out the 18 major risks that can impact a retirement plan. I described them as bugs in a financial operating system that need to be anticipated and managed. While every risk on that list is significant, one stands above the rest as the central challenge of modern retirement planning: Longevity Risk.

Longevity risk is the master variable. It is the foundational parameter that every other calculation depends on. If you get this input wrong, the entire system can fail, no matter how well-designed its other components are. Think of it this way: a traditional 30-year retirement is a marathon. It requires discipline, pacing, and a solid plan to finish successfully. But for many healthy retirees today—and especially for those in the Financial Independence movement who might retire decades earlier—the race is much longer. It's a 40- or even 50-year ultramarathon. The sheer length of this race is the single biggest variable that can stress-test a financial plan to its breaking point.

By the Numbers

• 86.6 years: The average life expectancy for a 65-year-old female in the U.S. For a 65-year-old male, it's 84.3 years. Remember, this is an average, meaning a 50% chance of living longer. (Source: Social Security Administration, Period Life Table, 2020, published 2024)

• 25%: The probability that for a 65-year-old couple, at least one spouse will live past the age of 95. (Source: Society of Actuaries, "Post-Retirement Risks and Related Decisions," 2017)

• ~20 years: The potential difference in retirement length between someone who retires at 45 (a FIRE goal) versus 65 (a traditional goal), dramatically increasing the planning horizon.

From the Case Files

Imagine a couple, David and Sarah, both 65. They build a plan designed to last until age 85, feeling confident because it covers their average life expectancies. David passes away at 83. Sarah, however, is in excellent health and lives to 94. For the last nine years of her life, she faces a catastrophic financial shortfall. The plan didn't fail because the investments were bad or because they overspent; it failed because the core assumption—their planning horizon—was wrong from the start.

Understanding the Risk: You're Probably Going to Live Longer Than You Think

Longevity risk is, quite simply, the possibility of outliving your financial resources because you live longer than you planned for. Most people have a flawed perception of their own life expectancy. They tend to anchor to the average life expectancy for the total population at birth, a number that is skewed downward by deaths at younger ages.

The reality for a healthy individual or couple reaching retirement age is dramatically different. As the numbers above show, a 65-year-old has already navigated the risks of youth and middle age, and their expected lifespan is significantly longer.

For couples, the critical number is joint life expectancy. The plan needs to support the surviving spouse for their entire lifetime. Planning for only an "average" lifespan is essentially a coin flip on your spouse's future security—a 50/50 bet that they won't be left in a financially precarious position.

The Impact on Your Plan: The Ultramarathon Effect

A longer retirement doesn't just mean you need more money; it creates a wider window for other risks to wreak havoc on your plan. A financial plan must be built to endure for decades, and a longer time horizon increases the cumulative probability of a negative event occurring. The longer you live, the more time inflation has to erode your purchasing power, the more market cycles your portfolio will be exposed to, and the higher the statistical probability becomes of a major health event or the need for expensive long-term care. In short, the length of the race itself is the biggest variable, and we will explore its specific impact on each of the other 17 risks throughout this series.

Solutions & Your Risk Mitigation Toolkit

You cannot eliminate longevity risk, but you can build a financial plan that is resilient enough to handle it. This requires moving beyond a simple accumulation mindset and embracing strategies specifically designed to create sustainable, lifelong income.

• Tool #1: Social Security Deferral. This is the single most powerful hedge against longevity risk available to most Americans. By delaying your claim from age 62 to 70, you increase your monthly benefit by about 77%. For the higher-earning spouse in a couple, this is even more critical, as it maximizes the survivor benefit that the surviving spouse will receive for the rest of their life. Think of it as using a portion of your portfolio to "buy" a larger, inflation-adjusted, government-backed annuity. Conceptually, it's the best annuity money can buy.

• Tool #2: A Diversified Equity Portfolio. A common mistake is becoming overly conservative with investments in retirement. To fund a multi-decade retirement, your portfolio must continue to grow to outpace inflation. While you should adjust your portfolio to have an appropriate amount of risk to protect against sequence risk, a portfolio with an appropriate allocation to diversified, low-cost equities is essential. Bonds and cash provide stability, but equities provide the long-term growth engine needed to finish the ultramarathon.

• Tool #3: Income Annuities (Longevity Insurance). For those deeply concerned about outliving their assets, an annuity can be a powerful tool to transfer that risk to an insurance company. A specific type of annuity, a Deferred Income Annuity (DIA)—often called "longevity insurance"—can be particularly effective. With a DIA, you pay a premium today in exchange for a guaranteed stream of income that begins much later in life, say at age 80 or 85. This can be a cost-effective way to create a safety net for your later years.

• Tool #4: A Dynamic Withdrawal Strategy. A rigid withdrawal strategy that takes out the same inflation-adjusted amount every year, regardless of market performance, is brittle. A more resilient plan is dynamic. By implementing "guardrail" strategies—where you reduce spending slightly after a down market year and potentially increase it after a strong one—you allow your portfolio to breathe. This flexibility dramatically increases the probability that your assets will last over a very long retirement.

We have diagnosed the problem. Longevity risk is a fundamental vulnerability that creates a wider opening for other negative events to occur. To manage this threat, we must build a resilient plan with clear protocols. These protocols include maximizing inflation-adjusted income streams, maintaining a long-term growth component, and building in adaptive spending and income strategies to handle the extended timeline. This approach ensures your financial plan is robust enough to last for a very long future.

Conclusion: The Great Balancing Act

The goal of a retirement plan isn't to predict your date of death. It's to build a system so robust that you have the freedom to live a long and fulfilling life without the constant fear of running out of money. The great balancing act here is between your desire to spend freely today and the need to ensure your resources last for an unknown, but potentially very long, future. By acknowledging the reality of modern lifespans and building a plan for the ultramarathon, you give yourself and your family the greatest gift of all: peace of mind.

Create Your Financial Compass with Us

Navigating longevity risk requires a plan that's as resilient as it is realistic. If you're ready to move beyond a simple accumulation goal and build a comprehensive retirement income strategy designed for the long haul, we're here to help. Contact us today to start the conversation.

Resources:

• AARP: Provides a wealth of articles and tools on health, longevity, and retirement planning. (www.aarp.org)

• National Institute on Aging: Offers research-based information on the health and wellness aspects of aging. (www.nia.nih.gov)

• Stanford Center on Longevity: Focuses on scientific and behavioral practices to support longer, healthier lives. (longevity.stanford.edu)

• Living to 100 Calculator: An online tool that estimates life expectancy based on personal and family health history. (www.livingto100.com)