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.

Investments that Hedge Longevity Risk are Surging

Investors seem to be aware of the fact that they need to hedge longevity risk. In other words, people are concerned about the risk of outliving their assets. Sales of deferred fixed annuities increased 60% in 2008. While many different types of annuity products may be used to hedge longevity risk, the longevity annuity may be optimal if the sole concern is in fact avoiding a scenario in which one outlives their money: "A 60-year-old with a $1 million portfolio but no pension might allocate half...

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Advanced Life Deferred Annuity

Life Expectancy

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Retirement

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Advanced Life Deferred Annuity

Life Expectancy

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Retirement

John Bogle Cautions on the Coming Retirement System Train Wreck

A very good article discusses Vanguard Founder John Bogle's views and work on the retirement system in the United States. Bogle is a highly vocal critic of the status quo: "Our nation's system of retirement security is imperiled, headed for a serious train wreck.That wreck is not merely waiting to happen; we are running on a dangerous track that is leading directly to a serious crash that will disable major parts of our retirement system." There are some interesting and surprising statistics:...

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Individual Retirement Account

Income

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Individual Retirement Account

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Consider 5 Basic Risks When Thinking About How to Plan for Retirement

How much do I need to save for retirement? How do I plan for retirement? Both are pretty basic questions that are top of mind for most people who are at or approaching retirement age, and the uncertainty and anxiety around these questions have only increased in light of the financial crisis. A recent article lists 5 risks that should be on the radar of anyone contemplating retirement: Inflation Longevity risk Market risk Health problems and expenses Losing a job or unexpected retirement Source...

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Start Thinking of Retirement Account as Part of Your "Longevity Planning"

Forbes magazine publishes a relatively new section called "Forbes Woman" that is dedicated to issues affecting professional and executive women. A recent column discusses financial planning and the need to consider longevity risk when constructing a portfolio--particularly in light of recent capital market volatility . Longevity risk is especially relevant to women since their life expectancies are longer than men. In addition, many women find themselves solely responsible for their family...

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New Derivatives Market Taking Shape with Longevity Swaps

Corporate pension plans face the real risk of having their plan participants live longer than what is projected by actuaries. In other words, similar to an individual who considers an annuity to offset the risk of outliving their assets in retirement, pension plans must deal with longevity risk. A new derivatives market is evolving to deal with longevity risk on an institutional scale. Many of the deals thus far have been between investment banks such as JP Morgan and insurance companies that...

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