Longevity risk
The risk of living longer than your retirement savings were planned to last.
Longevity risk is the possibility of outliving your money. Because nobody knows their own lifespan, planning to an average is a coin flip — roughly half of people will live beyond it.
A 65-year-old Australian today has a substantial chance of reaching 90 or beyond, so a plan built around a twenty-year retirement can leave a decade unfunded.
Mitigation involves some combination of drawing conservatively, keeping growth assets to outpace inflation, using guaranteed income products, and relying on the Age Pension as a safety net.
Couples face compounded longevity risk. The chance of at least one partner reaching a very advanced age is considerably higher than for either individually, so joint planning should use the longer horizon rather than an average of the two.
The decade nobody plans for
Savings modelled to last from 65 to 85 leave nothing for someone who reaches 95 — an outcome with a meaningful probability rather than a remote one.
The bit people get wrong
Shifting entirely to cash at retirement feels safe but can worsen longevity risk. Without growth assets, inflation erodes purchasing power across a retirement that may span thirty years.
Common questions
How long should I plan for?
Many advisers model to age 90 or 95 rather than life expectancy, precisely because averages leave half of retirees underfunded.
Does the Age Pension cover me?
It provides a floor that continues for life, which is genuinely valuable. Whether it supports your desired standard of living is a separate question.
What is sequencing risk?
The risk of poor returns early in retirement while you are also withdrawing, which permanently damages the balance available to recover.