Wealthier people are most likely to outlive mortality averages; advisors have a special obligation to
focus on longevity risk with their clients.
If you ask clients to name the most important risk in planning for their retirement, what would they pick?
Stock market risk? Inflation? The cost of health care?
The correct answer is “none of the above.” Research tells us that the biggest risk to a retirement plan is
longevity: the danger of exhausting resources before the end of life. And it is the least understood by people planning for retirement. Longevity risk is rising, along with lifespans, and the income products available to hedge the risk are inadequate. Fewer retirees have the guaranteed lifetime income protection of a defined benefit pension, and mapping out safe withdrawal rates from portfolios presents thorny problems.
Social Security provides some measure of protection, but it replaces a smaller percentage of preretirement income for wealthier households. And those replacement rates are falling under the reforms to the program legislated in 1983. Meanwhile, 1 out of 3 men and half of women who are in their mid-50s now will live to age 90 or beyond, according to the Society of Actuaries . And wealthier, better-educated people are most likely to outlive the mortality averages.
That means advisors have a special obligation to focus on longevity risk with their clients.
