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When you hear “risk of longevity,” what exactly is meant? Longevity refers to “long life” or “length of life.” Simply put, longevity risk is the risk that someone will outlive their wealth and available income.

It’s a fact that people are living longer. Not only has the average life expectancy increased, but one out of every four 65-year-olds living today will live past the age of 90. One out of 10 will live past 95.

From a financial point of view, living a long time can drastically affect many of your retirement costs, impacting and presenting a “risk” to many different items in your budget—right when you will be living on a fixed income.

Let’s examine some of the issues affected by longevity:


  1. Health Care

Health care expenses are a huge chunk of any retirement budget—even with Medicare. A healthy 65-year-old couple can expect to spend approximately $285,000 (in 2019) to cover health care expenses not covered by Medicare Part A during their retirement for Medicare Parts B, D and a supplemental insurance policy (sometimes called Part C). This assumes at least one of them worked and paid Medicare taxes and so their Medicare Part A premiums are covered.

And that total doesn’t even include dental, vision, co-pays, deductibles and out-of-pockets. When you add those in, a couple’s costs can be double that. Living longer not only increases yearly health care outlays, but your chances of developing a serious health issue increase as you get older.


  1. Incapacitation

Your odds of becoming incapacitated also increase with age, which could lead to the need for nursing care. In fact, 70% of people over 65 may end up needing some form of assistance. The average yearly cost of a semi-private room in a nursing facility is $7,513 per month in 2019!

Yes, you can qualify for Medicaid to cover your nursing home stay—if you spend down all of your assets to poverty level. There are options to this scenario that you definitely want to consider.


  1. Inflation

Prices will continue to get higher through the years—in fact, inflation is part of the Federal Reserve’s monetary policy. Inflation undermines your purchasing power over time. While it’s true that if the Consumer Price Index (CPI) rises in a given year, retirees sometimes get a COLA (Cost-of-Living Adjustment) increase on their Social Security benefit check, you’d best not count on that. During some years, there has been no COLA, in fact no increase is what is anticipated for 2021. It goes without saying that the longer you live, the more you will spend on consumer goods and living expenses.


  1. Excess Withdrawal / Inadequate Income

If your portfolio isn’t structured properly to provide enough income for a long life, you really are at risk of running out of money. Unexpected family expenses or needing to withdraw money during a market downturn can affect your nest egg negatively for the long term (kind of like dollar-cost-averaging in reverse). The death of a spouse is also a risk to your income, as one Social Security goes away and tax rate is higher for a single person.


The point of this article is not to inspire fear, but to inspire early, realistic retirement planning. Don’t worry about the future–let’s make some solid plans! Call us. You can reach your retirement planning advisor in Gilbert at 480.270.2802.