Glossary
Longevity Risk
Longevity risk is the risk of outliving one's savings because retirement lasts longer than the money was planned to last.
A 65-year-old couple faces a substantial chance that at least one spouse reaches the mid-90s, so a retirement plan built to age 85 carries a real probability of failing while its owner is still alive. Longevity risk compounds other risks: the longer the horizon, the more inflation erodes and the more market cycles must be survived.
Why it matters in practice
The classic hedges are guaranteed lifetime income streams — Social Security (where delaying benefits buys more inflation-adjusted lifetime income), pensions, and certain annuities — layered under a portfolio invested for growth. Planning to a conservative age, rather than to average life expectancy, is the simplest structural protection: average is the age half of retirees outlive.
Related terms: Annuity · Pension · Sequence-of-Returns Risk · Inflation · Defined Benefit Plan