How a long life can affect retirement savings

How a long life can affect retirement savings

Understanding the risk that longevity can pose to retirement security.

Most people would like to live a long life and enjoy a lengthy retirement. Yet, clients often overlook the risk to retirement plans that a long life can pose.

Retirees are living longer, more fulfilling and active lives in retirement. The average life expectancy at age 65 continues to increase, and people who retire today often live for another 20 to 25 years after leaving the workforce. That’s 20 to 25 years worth of living expenses that need to be paid from retirement savings. What’s more, there is nearly a 50% chance that at least one person in a couple who are 65 years old today will live to age 90.1

To live the reitirement they want, clients need to address the risk of longevity to their strategy.

Around half of Americans (48%) in the most recent Allianz Life Retirement Risk Readiness Study* said they worry that they will outlive their money. Another 42% said there is no way they can afford to live decades in retirement.

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Inflation compounds over time

The risk that longevity poses to a retirement strategy is only heightened by inflation. Many of us have noticed recent price increases at the grocery store. The consumer price index increased 7.9% over the 12 months until February 2022. This is the highest 12-month increase since 1981 – over 40 years ago.2

If inflation was a modest 2.5%, that would mean prices would double in 28 years. At current rates, it would be much sooner. This recent inflation is causing 71% of study respondents to say it is very difficult to know how much money they will need in retirement with the way costs change.


Exploring lifetime income in retirement

Income annuities can offer a stable, dependable source of income that cannot be outlived, and some even offer increasing income potential through an income benefit rider that may either be built in to the contract or optional and at an additional cost. Annuities provide a level of protection for retirement savings and help address risks, like longevity and inflation, that can derail a retirement strategy.

An annuity can offer benefits that differ from those offered by other assets in an overall retirement strategy. A key differentiator for an annuity is that it offers guaranteed lifetime income. That means the benefits of an annuity last as long as a client lives.

Annuities provide predictable payments for retirement income after a period of time passes. The contract terms vary for how long an annuity must be held before receiving payments. Annuities can help protect against market downturns and still allow clients access to their accumulated contract value.

1 Social Security Administration, Period Life Table, 2017 (published in 2020), J.P. Morgan Asset Management

2 Bureau of Labor Statistics, CPI February 2022.

*Allianz Life conducted an online survey, the 2022 Retirement Risk Readiness Study, in February 2022 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k.