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Longevity risk

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– Individuals:
– Many underestimate longevity risk.
– In the US, most retirees do not expect to live past 85.
– Median conditional life expectancy for men at 65 is 85.
– Half of 65-year-old men will live to 85 or older.
– Women have even higher life expectancy.

– Low interest rates and declining returns exacerbating longevity risk:
– Returns on government bonds are collapsing.
– Returns for core assets like blue chip stocks are falling.
– A silent demographic shock is occurring.
– Pension premiums may rise significantly.
– Disposable incomes might stagnate.

– Bibliography:
– Vincent Bazi & M. Nicolas J. Firzli, 1st annual World Pensions & Investments Forum, Revue Analyse Financière, Q2 2011, pp. 7–8.
– Thomas Crawford, Richard de Haan, & Chad Runchey, Longevity risk quantification and management: a review of relevant literature, The Society of Actuaries, March 2008.
– Gavin Jones, Financial Aspects of Longevity Risk, Cass School International Conference on Longevity, 18 Feb. 2005.

Longevity risk factors:
– People living longer affects retirement planning.
– Financial products may need to adapt to increased longevity.
– Risk of outliving retirement savings is a concern.
Longevity risk is a key consideration for pension funds.
– Governments and individuals need to address longevity risk.

– Strategies to mitigate longevity risk:
– Diversifying investment portfolios can help.
– Purchasing annuities to provide guaranteed income.
– Delaying retirement age can reduce longevity risk.
– Long-term care insurance can protect against healthcare costs.
– Planning for a longer retirement period is essential.

Longevity risk (Wikipedia)

A longevity risk is any potential risk attached to the increasing life expectancy of pensioners and policy holders, which can eventually result in higher pay-out ratios than expected for many pension funds and insurance companies.

One important risk to individuals who are spending down savings is that they will live longer than expected, and thus exhaust their savings, dying in poverty or burdening relatives. This is also referred to as "outliving one's savings" or "outliving one's assets".

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