To be blunt, as part of their financial planning process, many more people should establish a longevity strategy. As we discussed in a recent blog Longevity Planning vs. The 4% Retirement Rule, there are many considerations when making these decisions. However, two primary characteristics determine which pre-retirees and retirees will benefit most:

INITIAL FINANCIAL CONDITION: Retirees with “modest-sized” nest eggs relative to expected expenses in retirement need a longevity strategy more. Retirees with large nest eggs relative to expected expenses in retirement require little income protection, as their strong financial position allows them to weather market fluctuations and unexpected longevity. Retirees with small nest eggs relative to expected expenses should focus on accumulating assets before pursuing income protection.

INDIVIDUAL RISK TOLERANCE: Retirees with low risk tolerance – either to market conditions or to individual longevity – should pursue income protection for piece of mind.

In addition to these primary factors, the investor should consider his or her current age when deciding whether to create a custom investment portfolio or purchase longevity insurance right now. Still, additional considerations and scenarios exist when considering which solution is best for investors. For example, though a longevity insurance policy becomes more appealing as one ages, every year of delay in purchasing it creates an opportunity cost. The premium increases as the time between the purchase date and the income start date decreases. In selecting the optimal age of purchase, the investor must compare:

The return on each dollar of investible assets used to purchase the longevity insurance policy. This is how fast the premium increases for a longevity insurance policy with a specific income start date;

The return on that same dollar if it were instead invested in an alternative risky portfolio.

Though no precise wealth level corresponds to each of the rows above (as it will vary with a retiree’s goals and income needs, among other characteristics), those whose net worth is likely to be greater than $10 million to $15 million+ at retirement may want to consider self-insuring; whereas those who are likely to retire with less than $1 million, may want to focus on accumulating assets. That leaves a very large “sweet spot” in between.


So including a longevity strategy (custom investment portfolio or longevity insurance) in a holistic lifetime financial plan has significant payoffs:

Improve your odds of meeting your goals: By including a longevity strategy in the portfolio, the retiree may be able to guarantee funding for his or her retirement needs after age 85. As a result, the retiree might bear investment risk for a shorter time. Even with a potentially lower expected portfolio return (say due to low interest rates), the retiree can still improve the ability to meet all of their retirement expenses.

Spend and leave behind more for small upfront investment: A longevity strategy can empower retirees to use their savings, as well as increase their bequest to their heirs. By allowing an investor to build a financial plan that addresses the risk of outliving their assets, establishing one’s own longevity solution can provide an investor with the same financial security with higher living standards; the same financial security with less initial principal required; and higher expected asset accumulation with the same financial security.

Enjoy the peace of mind of knowing you’re protected: In addition to financial benefits, longevity strategies can create the income stream that provides peace of mind. In general, financial planning improves investors’ sense of control, happiness, and life satisfaction. By removing the contingency around living past one’s life expectancy, longevity insurance can further increase that sense of well-being, allowing people to stop worrying and enjoy their retirement.

This sense of confidence can itself lead to a longer life. Studies have shown that financial worry leads to depression, anxiety, sleepnessness, sickness, and poor relationships. The right longevity strategy can initiate a virtuous cycle, in which financial security creates well-being, which extends life while protecting retirees against the costs of those extra years.


Making the right planning decisions today has never been more important.

Human ingenuity has dramatically extended our lifespans, and these advances may even be accelerating. That is the good news. The bad news is that living longer, with fewer reliable sources of retirement income, exposes us to the frightening prospect of outliving our assets. But investors don’t have to take this unnecessary risk. A longevity strategy is a targeted, purpose-built solution to this problem. It is the missing element required to transform a financial plan focused on getting investors to retirement, to a lifetime plan that gets them all the way through it and beyond.

As always, we appreciate our relationship with you and we are here to help.


How much Retirement Income is right for you

Source:  Harvard Business School; Irving, Kym. "The Financial Life Well-Lived"; Bartholomae/Fox. "Coping with Economic Stress." Journal of Financial Therapy, 2017. Oliver Wyman; Stone Ridge. M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. This blog has been provided solely for informational purposes and does not represent investment advice or provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy. Any stated performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Charts and graphs provided herein are for illustrative purposes only. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.

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