106 • MARTIN H. RUBY
Longevity Risk This book has focused on the three main risks you face when saving for retirement: structural risk, market risk, and tax risk. There’s a fourth risk that is equally important, if much harder to eliminate. And that’s longevity risk. How old is the oldest living person in your family? Eighty? Ninety? One hundred? There’s a good chance you’ll outlive that relative. That’s longevity risk. Longevity risk is the risk of living too long, and it has a big im- pact on your retirement savings. Longevity risk goes against the way you normally think. Most of us would agree a long life is a blessing. The longer you live, the more years you have to enjoy time with your children, grandchil- dren and, yes, great-grandchildren. My father-in-law turned ninety this year, and he treasures every day on earth as a gift. But a long life also brings risks, and they’re risks most of us don’t think about. Consider this. You’re sixty-five and getting ready to retire. You’re reviewing your retirement savings account to see how much money you’ll have to spend in retirement. If you live to be eighty-five, those funds have to last twenty years. If you live to be ninety-five, that same pot of money has to last you thirty years. That’s 50 percent more income needed from the same assets. That’s why longevity matters. You’re Probably Underestimating Your Lifespan As an actuary, my specialty is in assessing longevity risk. When I would price insurance and annuity products for insurance com- panies, I would have to make assumptions about how long policy- holders, on average, would live. Throughout my work, I found people often assume their longevity to be shorter than it is. Put
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