Glossary
What is longevity risk?
Longevity risk is the possibility of outliving your money. It is the risk that makes every other retirement risk matter: a market decline is survivable over ten years and potentially ruinous over thirty. Planning to average life expectancy leaves roughly half of people short.
Average life expectancy is the wrong planning number because it is a midpoint. Half of people exceed it, and for a healthy couple the chance that at least one lives well past it is high.
It compounds everything else. A bad sequence of returns is recoverable over a short retirement and not over a long one. Inflation is manageable over ten years and a serious erosion over thirty.
The defenses are simple ones: lifetime income like Social Security or a pension, keeping growth assets in the later segments, and planning to a horizon with a margin rather than to an average.
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