A long life is a gift—but it’s not without challenges. One of the most underestimated risks in retirement is longevity risk, the possibility of outliving your financial resources. It’s a quiet threat that impacts not only your finances, but your sense of independence and peace of mind.
Today, we want to help you understand what longevity risk really looks like—and more importantly, how you can take proactive steps to protect against it.
Understanding the Longevity Revolution
Life expectancy has steadily tracked upwards for decades, largely because of healthcare and lifestyle improvements. According to the United Nations World Population Prospects report, life expectancy is projected to reach a staggering 89 years old in the U.S. by 2100, which means many retirees will live 20-30 years beyond the traditional retirement age. While this is good news, it underscores why planning matters now more than ever. If we want to age well, we need to plan differently than we did in the past.
While the data is clear, many individuals have been slow to adopt this reality. Here are a few common misconceptions:
- “It won’t be me.” Many people believe they only need to plan for 20 years or so, but many will live well into their 90s.
- “Medicare will handle my healthcare needs.” Unfortunately, Medicare does not cover all medical expenses or long-term care.
- “I won’t need long-term care.” Approximately 70% of people over the age of 65 will require some form of care.
What Does Longevity Risk Look Like?
While Americans are living longer, longevity risk isn’t only about living past 90. It’s also about what could happen along the way:
- The early loss of a spouse. If one spouse passes away early in retirement, the surviving partner may be left with a reduced income—especially if relying on a pension with a 50% survivor benefit or if their income is supplemented by a partner’s Social Security.
- Escalating long-term care needs. It’s tough to predict if or when you’ll need care, how long it will last, and how much it will cost. Long-term care needs can vary dramatically and are rarely covered fully by Medicare.
- Changes to Social Security. With growing concern over the future of Social Security, those 10–15 years away from relying on it may be right to worry about benefit reductions or delayed access.
Without a flexible plan, any of these events could create significant strain on your retirement assets.
Steps to Mitigate Longevity Risk
Every situation is unique, and so are the strategies to address it. At Avena Impact Wealth Advisors, we believe that retirement planning isn’t about guesswork—it’s about designing dynamic solutions that adapt to your life.
Here are key ways to prepare for a long and fulfilling retirement:
1. Build a Dynamic Financial Plan
Rigid retirement plans often fail when life takes unexpected turns. We help clients design adaptive plans that evolve over time—whether that means adjusting income streams, reallocating investments, or accounting for new expenses.
2. Account for Long-Term Care Costs
We explore multiple funding strategies tailored to your comfort and goals:
- Hybrid insurance policies that combine long-term care and life insurance. Many hybrid options guarantee that you’ll receive some kind of benefit from your insurance.
- Self-insurance strategies for clients with strong asset bases. Self-insurance can help you save on insurance premiums, but as a result you assume more risk. It’s important to work with a financial advisor when exploring this option.
- Tax-advantaged HSAs that are overfunded before retirement. While overfunding HSAs can have some penalties, they can also help you cover additional medical expenses in retirement.
Each path has its pros and cons, but the key is making sure you’ve addressed this in advance—before it becomes urgent.
3. Use Annuities Strategically
Annuities can serve as a powerful tool to mitigate longevity risk by providing a guaranteed income stream for life. They are particularly beneficial for individuals concerned about outliving their retirement savings.
- Longevity Annuities: These are deferred income annuities that begin payments at a later age, such as 80 or 85, offering higher payouts because of the shorter expected payment period. This strategy can be cost-effective in securing income in your later years.
- Immediate Fixed Annuities: These start payments almost immediately after a lump-sum investment and can provide a stable income, which is especially useful for covering essential expenses.
- Variable and Indexed Annuities: These offer the potential for higher returns linked to market performance but come with increased complexity and risk. They may include features like inflation protection or death benefits.
Together, we’ll assess the suitability of annuities within the broader context of your retirement plan, considering factors like other income sources, investment portfolio, and personal risk tolerance.
4. Plan for Survivor Scenarios
Ensuring financial security for a surviving spouse is crucial for both of you, especially when longevity planning.
- Social Security Survivor Benefits: A surviving spouse may be eligible to receive the deceased spouse’s full benefit amount, provided they have reached full retirement age. This can be a significant source of income continuity.
- Pension Survivor Options: Many pension plans offer joint-and-survivor options, which provide reduced monthly benefits during the retiree’s life but continue payments to the surviving spouse after death. Selecting the right option requires balancing current income needs with future security.
- Life Insurance: For those without pension survivor benefits or sufficient savings, life insurance can offer a lump-sum payment to the surviving spouse, helping to cover expenses and maintain their standard of living.
Regularly reviewing and updating beneficiary designations and understanding the implications of each choice are essential steps in this planning process.
5. Maximize Social Security and Medicare Decisions
Strategic decisions regarding Social Security and Medicare can significantly impact retirement finances. As we create a longevity plan with you, we’ll explore what Social Security and Medicare benefits would best supplement your income.
- Timing of Social Security Benefits: Delaying Social Security benefits increases monthly payments. For example, delaying benefits from age 66 to 70 can result in a 32% increase in monthly payments.
- Spousal and Survivor Benefits: Coordinating benefits between spouses can maximize total household income. For instance, one strategy involves the lower-earning spouse claiming benefits early, while the higher-earning spouse delays, increasing the survivor benefit if they pass away first.
- Medicare Enrollment: Medicare enrollment periods and coverage options are important to understand when planning for longevity. Decisions about Medicare Advantage vs. Original Medicare, and the selection of Part D plans, should align with healthcare needs and financial considerations.
6. Implement Tax-Efficient Withdrawal Strategies
Efficient withdrawal strategies can extend the longevity of retirement savings by minimizing tax liabilities.
- Withdrawal Sequencing: A common approach is to withdraw funds in the following order: taxable accounts first, then tax-deferred accounts (like traditional IRAs and 401(k)s), and finally tax-free accounts (like Roth IRAs). This sequence allows tax-advantaged accounts to grow longer and can reduce overall taxes. However, every situation is unique, and we’ll help you develop the right withdrawal strategy for your situation.
- Roth Conversions: Converting funds from traditional IRAs to Roth IRAs during years with lower income can reduce future required minimum distributions and provide tax-free withdrawals later. This strategy requires careful planning to manage tax brackets and avoid unintended consequences.
- Qualified Charitable Distributions (QCDs): For individuals aged 70½ or older, directing IRA distributions to qualified charities can satisfy required minimum distributions without increasing taxable income.
Your Longevity Strategy: Unique, Personal, and Purposeful
There’s no one-size-fits-all solution to longevity risk. That’s why working with a seasoned advisor is so essential. Our role is to bring clarity to complexity—identifying your unique vulnerabilities and crafting a plan that extends not just your resources, but your freedom to live well.
Whether you’re facing big decisions about long-term care, Medicare, or your withdrawal strategy, you don’t have to go it alone.
A Long Life Should Be a Good Life
At Avena Impact, we don’t just manage wealth. We empower clients to live with purpose, independence, and dignity—no matter how long they live. Let’s build a plan that gives you the freedom to dream, not just prepare.Ready to begin? Let’s talk about how you can turn longevity risk into long-term confidence.