Longevity Risk

The risk of outliving one's assets. In other words, the risk of running out of money during retirement. In most countries, average life expectancy has increased dramatically over the past several decades. Longer lifespans are somewhat of a mixed blessing because of the financial burden associated with more years of retirement. Individuals, insurance companies and governments are exposed to the financial pressures created by the need to finance increasing longevity. Longevity risk is a key challenge for many societies around the world.

A Capital Market for the Risks of Aging Societies

Swiss Re is very good at highlighting the scale of longevity risk on a global basis and the challenges--financial and otherwise--that result from aging societies. A recent report from Swiss Re highlights the magnitude of the longevity risk challenge and calls for the development of a capital market to deal with the high hurdle of funding longer lives. Points from the report that highlight the scope of longevity risk include: The aggregate value of defined benefit pension liabilities on a global...

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On Withdrawal Rates

In a recent Barron’s interview, Ray Dalio discusses financial deleveraging and makes an interesting point about the relationship between nominal interest rates and nominal...

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Treasury Department Focuses on Longevity Risk with Retirement Income Guidance

The Treasury Department just released a proposed set of regulations that could have a meaningful impact on the retirement income market in the U.S.

The Treasury’s guidance package builds on feedback received in response to the request for comments issued by the Labor and Treasury Departments last fall.

The...

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Individual Retirement Account

401k

Income

Pension Plan

Advanced Life Deferred Annuity

Required Minimum Distribution

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Record High Deficits for Defined Benefit Pension Plans

Defined benefit pension plans are the traditional and increasingly rare type of pension plans offered through employers. In contrast to defined contribution pension plans such as the 401(k), participants in defined benefit (“DB”) plans receive contractually guaranteed income and assume none of the risks (investment risk, interest rate risk , longevity risk, etc) associated with producing that lifetime income stream. The problem is that defined benefit plans are scarce, and many of...

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Market Gyrations Cloud the Larger Picture

A very interesting article from Financial Times columnist David Stevenson suggests that investors are making the very common mistake of missing sight of the forest for the trees. In this case, the trees are the daily ups and downs of the stock market. Market volatility naturally draws many people into a sort of short-term obsession with undulating asset prices and portfolio values. Stevenson makes that very valid point that this short-term obsession obscures larger, longer-term and likely...

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