There are many clients and advisers that misunderstand the essential planning concept of longevity risk. It is important to differentiate between longevity risk and life expectancy. The topic of longevity risk is less concerned with the average age of death and is instead more concerned about the rate of variance from that average. This column discusses how longevity risk adheres to a bell curve structure, and has remained steady for 10-12 years. Many clients fear outliving their retirement savings, and running out of money later in life. Financial planners can use the longevity risk bell curve to identify the client’s risk of extreme longevity. Understanding the risk of longevity can give the client time to make preparations like considering the insurance option.
See David Lenok, Understanding and Communicating Longevity Risk, Wealth Management, October 19, 2015.
Special thanks to Jim Hillhouse for bringing this article to my attention.
