Investor Corner/The wider picture/Risk, Regulation & Advanced Ideas
5.3.6 Longevity Risk
Longevity risk is the risk of outliving your money. It is particularly important for retirement planning, where equity exposure often needs to continue well past the retirement date itself, not stop the day it begins.
Why retirement can last longer than expected
Improving healthcare and rising life expectancy mean a retirement that begins at 60 can realistically last twenty five years or more. Planning a retirement corpus as though it only needs to last a decade or fifteen years, when it may actually need to last considerably longer, is one of the more common and consequential planning mistakes.
Why shifting entirely to cash at retirement can backfire
A common instinct is to move a retirement corpus entirely into very safe, low-growth instruments the moment retirement begins. For a genuinely long retirement, this can actually increase longevity risk rather than reduce it, since a corpus earning only enough to barely keep pace with inflation has little room left to grow and support several more decades of withdrawals.
A more balanced approach
Many retirement plans retain some meaningful equity allocation well into retirement, specifically to help the corpus keep growing enough to support withdrawals over what could be a genuinely long remaining lifespan, while pairing that with a cash or short duration buffer to manage sequence of returns risk along the way.
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