Why longevity is a financial planning issue

People are living longer. According to Social Security actuarial tables, a meaningful share of 65‑year‑olds will reach their 90s, and many will live into their mid‑90s. That extra decade (or two) of life changes the math: retirement portfolios must support more years of withdrawals, healthcare needs and long‑term care costs become more likely, and sequence‑of‑returns risk (losing years early in retirement) becomes more dangerous.

In my practice as a financial planner over the past 15 years, clients routinely underestimate how long their money must last and underbudget healthcare. The result is anxiety and often last‑minute, costly adjustments. This entry explains the common risks and gives practical, implementable solutions you can discuss with a planner or advisor.

Sources: Social Security Administration life‑expectancy data (SSA.gov), Insurance Information Institute on long‑term care costs (iii.org), and IRS guidance on retirement planning (irs.gov).

Key financial risks tied to longevity

  • Income shortfall: Retirement portfolios must produce reliable cash flow for more years than many expect. Relying solely on a portfolio of stocks and bonds without guaranteed income can leave gaps.
  • Rising healthcare and long‑term care (LTC) costs: Long‑term care needs become far more likely with advanced age; LTC services (assisted living, nursing care, in‑home care) can be expensive and unpredictable. According to industry sources, LTC can exceed six figures per year in some areas over time (Insurance Information Institute).
  • Inflation erosion: Even modest annual inflation erodes purchasing power over long retirements. A 2.5% inflation rate halves purchasing power over ~28 years.
  • Sequence‑of‑returns risk: Sizable portfolio losses early in retirement combined with ongoing withdrawals can permanently reduce lifetime income.
  • Longevity risk for spouses/survivors: Couples must plan for the longer‑lived partner and how survivor benefits affect household income.
  • Policy and regulatory risk: Changes to tax, Social Security, or healthcare rules can affect expected income and costs.

Practical solutions and how to use them

Below are prioritized strategies you can apply now or discuss with a planner. Combine solutions; no single fix eliminates longevity risk.

1) Build a diversified income foundation

  • Preserve a base of predictable income using Social Security, defined benefit pensions (if available), or annuities. A small portion of your portfolio placed in a lifetime immediate or deferred annuity can eliminate base income risk.
  • Qualified Longevity Annuity Contracts (QLACs) are a tax‑favored option for delaying required minimum distributions and providing income later in life. Learn more about QLACs and how they fit retirement cash flow plans: Qualified Longevity Annuity Contract (QLAC).
  • Consider annuity laddering—buying annuities at different times or with staggered start dates—to balance flexibility and guaranteed income. See discussion: Using Annuity Options Selectively to Secure Base Income.

2) Address long‑term care risk explicitly

  • Evaluate long‑term care insurance (traditional or hybrid policies) if you have limited family caregiver options or low tolerance for risk. Long‑term care claims can quickly deplete savings; industry sources document rising LTC costs and options for coverage (Insurance Information Institute: https://www.iii.org).
  • Hybrid life/LTC policies and limited‑pay options are alternatives that convert some life insurance value to LTC benefits, or return unused premiums to heirs.
  • If you self‑insure, create a dedicated LTC reserve and update your amortization assumptions annually. FinHelp articles on LTC planning can help you compare options: Long‑Term Care Insurance: What It Covers and Who Needs It and Long‑Term Care Solutions: Insurance, Hybrid Policies, and Alternatives.

3) Use tax‑efficient withdrawal sequencing

  • Withdraw from taxable, tax‑deferred, and tax‑free accounts in a sequence that minimizes lifetime taxes and preserves flexibility. For many, partial Roth conversions before full retirement can lower future RMDs and taxes.
  • Keep in mind RMD rules: Current IRS rules set the RMD age at 73 for most people who reach age 72 after 2022; consult current IRS guidance at https://www.irs.gov/retirement‑plans for updates.

4) Preserve optionality with an emergency and healthcare reserve

  • Maintain cash or short‑term bonds holding 1–3 years of planned spending to avoid selling equities in a market downturn (mitigates sequence risk).
  • Fund an HSA (if eligible) pre‑retirement—HSAs provide tax‑deductible contributions, tax‑free growth, and tax‑free withdrawals for qualified medical costs, which makes them a powerful tool for future healthcare spending.

5) Plan Social Security claiming strategically

  • Delaying Social Security to age 70 increases your monthly benefit and insures against longevity risk; early claiming reduces lifetime income for many who live longer. Run break‑even analyses before claiming.

6) Control withdrawal behavior and apply guardrails

  • Avoid strict application of a single rule (like an unadjusted 4% rule). Use dynamic withdrawal strategies that adjust withdrawals for market performance and longevity forecasts.
  • Set guardrails: for example, reduce discretionary withdrawals by X% after a 20% portfolio drop until a recovery threshold is met.

7) Protect the couple and the legacy

  • Design survivor income: choose Social Security spousal strategies or annuity options with survivor benefits where necessary.
  • Integrate longevity planning with estate plans so healthcare decisions and costs don’t force fire sales of assets.

8) Work longer or part‑time where practical

  • Continuing to work—even part‑time—delays withdrawals, increases savings, and can improve Social Security results.

Sample planning checklist by decade (practical steps)

  • In your 50s: run longevity scenarios, increase retirement savings, evaluate LTC options, open or top‑up HSAs if eligible.
  • Early 60s: test Social Security claiming options, finalize pension election choices, consider partial Roth conversions while in a potentially lower tax bracket.
  • Late 60s / pre‑retirement: lock in a base of guaranteed income if desired, set up withdrawal rules and cash reserves, buy LTC or hybrid coverage if decided.
  • In retirement: review plan annually, adjust spending rules when markets deviate from expectations, keep tax strategy current.

Common misconceptions

  • “I won’t live that long”: Underestimating longevity is the single most common planning error. Plan for a longer horizon and build flexibility.
  • “Medicare covers long‑term care”: Medicare generally does not pay for extended custodial long‑term care—plan separately for LTC.
  • “Annuitizing wastes money I could leave to heirs”: Modern annuity options include survivor benefits, period‑certain payouts, or hybrid structures that preserve some legacy while addressing income risk.

Example: a simple scenario (illustrative)

Mary has $500,000 at 60, plans to retire at 65. She wants a 25‑year retirement horizon. Combining a conservative portfolio with a deferred annuity (or laddered income) to cover base living expenses, keeping a healthcare reserve and funding an HSA, and implementing a dynamic withdrawal plan will materially reduce the probability of outliving her assets versus relying on a portfolio withdrawal only. Work with a planner to run Monte Carlo simulations and sensitivity tests for your specific assumptions.

Where to learn more and next steps

  • For Social Security actuarial assumptions and life expectancy data, see the Social Security Administration (https://www.ssa.gov).
  • For retirement tax rules and RMDs, see IRS retirement guidance (https://www.irs.gov/retirement-plans).
  • For long‑term care costs and insurance options, see the Insurance Information Institute (https://www.iii.org) and FinHelp’s long‑term care glossary pages linked above.

If you want a practical next step: gather current statements (investment accounts, pensions, Social Security estimates, insurance policies), run a longevity scenario with at least three time horizons (85, 90, 95+), and schedule a review with a certified financial planner.

Professional disclaimer: This article is educational and does not replace personalized financial, tax, or legal advice. Individual circumstances vary—consult a certified financial planner and a tax professional before acting. The strategies and regulatory references in this article are current as of 2025 but may change; always verify rules with the issuing agency.

Author note: In my practice I prioritize a hybrid approach—secure a base level of guaranteed income, preserve growth potential, and explicitly fund health‑related risks. That pragmatic mix reduces stress for clients and delivers a higher probability of sustaining lifestyle across longer retirements.