What If I Live to 100? How to Plan for Longevity Risk

What if you live longer than you expect?

It sounds like a wonderful problem to have. More years of life can mean more time with family, more travel, more hobbies and more opportunities to enjoy retirement.

Financially, however, living a long life creates a challenge that every retirement plan needs to consider.

Your money may need to support you for much longer than you originally expected.

This is known as longevity risk.

Longevity risk is the possibility that you live long enough to outlast your financial resources. It is one of the reasons retirement planning should not simply ask, "How much money do I need to retire?"

A better question is: "How long might my retirement last, and what happens if it lasts longer than expected?"

What Is Longevity Risk?

Longevity risk is the financial risk associated with living longer than your retirement plan was designed to support.

Imagine that someone retires at 60 and builds a retirement projection that lasts until age 90.

What happens if that person lives to 95?

What if they live to 100?

The additional years are not simply extra years on a calendar. They may also mean additional years of:

• Housing expenses
• Food and everyday spending
• Healthcare and insurance costs
• Taxes
• Investment withdrawals
• Inflation
• Potential portfolio volatility

The longer retirement lasts, the longer your financial resources need to remain available.

Why Living to 100 Changes a Retirement Plan

Consider two people who each retire with $1 million.

One retires at 65 and plans for a 20-year retirement.

The other retires at 55 and may need the same $1 million to support several additional decades.

The account balance alone does not tell you whether either person has enough money.

Their spending, income, taxes, investment returns, retirement age and expected longevity all matter.

This is why a retirement calculator that simply reports an ending balance at one selected age can provide only part of the picture.

Your Retirement Number Depends on How Long You Need the Money

The amount you need for retirement is closely connected to the length of your retirement.

Someone who retires at 65 and needs income for 20 years has a different financial challenge from someone who retires at 55 and needs income for 45 years.

Our article How Much Money Do I Need to Retire? Calculate Your Retirement Number explains why your retirement number depends on more than your current account balances.

Longevity is one of the most important assumptions in that calculation.

Should You Plan to Live to 100?

Planning for age 100 does not mean you need to assume that you will live to exactly 100.

Instead, age 100 can be useful as a stress test.

If your plan works comfortably through age 100, that can provide useful information about its resilience.

If your plan runs out of money at age 91, testing age 100 can reveal the potential vulnerability before it becomes a real-world problem.

The objective is not to predict your exact lifespan.

The objective is to understand how sensitive your retirement plan is to living longer than expected.

Test Multiple Lifespans

Instead of choosing one life expectancy and accepting it as fact, test several possibilities.

For example:

• Age 85
• Age 90
• Age 95
• Age 100
• Age 105

The exact ages you choose are less important than understanding how your plan responds as the retirement period gets longer.

This can be particularly useful if you are considering early retirement. Retiring at 55 and living to 100 could mean a retirement lasting roughly four and a half decades.

That is a very different financial challenge from retiring at 70 and living to 85.

Longevity Risk and Early Retirement

Early retirement and longevity risk are closely connected.

If you retire earlier, your portfolio may need to provide income for more years.

You may also have fewer years of employment income and contributions and more years during which investment returns, inflation and withdrawals can affect your financial plan.

That does not mean early retirement is necessarily unsafe.

It means the plan should be tested against a longer retirement.

Our article Can I Retire Early? How to Know If You Can Afford Early Retirement explores the broader early-retirement question.

You can also read What If I Retire Early? How to Test Different Retirement Ages for a detailed look at how changing retirement age affects a retirement plan.

Living Longer Means More Years of Withdrawals

One of the simplest ways longevity affects retirement is through withdrawals.

If you need $60,000 of portfolio-supported income each year, living another ten years could mean ten additional years in which your portfolio needs to provide some level of financial support.

The actual calculation is more complicated because investment returns, inflation, taxes and other income sources affect the result.

But the basic principle is straightforward: a longer retirement can require your assets to last longer.

Inflation Does Not Stop at Retirement

Longevity also increases your exposure to inflation.

If you live for another 30 or 40 years, the purchasing power of money can change substantially during that period.

A retirement budget that seems comfortable today may need to be much larger in the future to purchase the same goods and services.

This is one reason retirement planning should model inflation rather than assuming that today's spending level will remain unchanged forever.

The longer your retirement, the more important long-term purchasing power becomes.

Healthcare and Other Later-Life Expenses

Living to 100 may also mean experiencing several different phases of retirement.

Spending may not remain constant throughout your life.

Some retirees spend more during their early retirement years when they are active and traveling. Spending may change later as priorities shift. Healthcare and support needs may also become more significant for some people.

This does not mean that everyone will follow the same spending pattern.

It means that a flat retirement budget may not fully capture the range of possible futures.

Reliable Income Becomes More Valuable Over a Long Retirement

Pensions and government benefits can play an important role in managing longevity risk.

Depending on your country and circumstances, this could include pensions, CPP, OAS, Social Security or other sources of relatively predictable retirement income.

If part of your retirement income continues for life, your investment portfolio may not need to fund every dollar of spending.

That distinction can become increasingly important as retirement extends into later life.

Our article CPP, OAS and Social Security: How Government Benefits Affect Retirement Planning explains how government benefits can fit into a complete retirement plan.

The 4% Rule Does Not Eliminate Longevity Risk

The 4% rule is often discussed as a simple way to estimate sustainable retirement withdrawals.

But a generic withdrawal rule cannot account for every person's retirement age, spending, taxes, investment portfolio, income sources or longevity.

The length of retirement is particularly important.

A withdrawal strategy designed around a particular retirement period should not automatically be assumed to work for every retirement length.

Read The NEW 4% Rule: Why You May Be Able to Spend More in Retirement for a broader discussion of personalized withdrawal planning.

What If You Live to 100 and Markets Perform Poorly?

Longevity risk does not occur in isolation.

Imagine that you retire at 60, live to 100 and experience a significant market decline early in retirement.

That combination could create a much more difficult retirement scenario than simply assuming you live to 100 while investments perform according to your average long-term return.

This is why stress testing should consider multiple risks.

Our article How to Stress-Test Your Retirement Plan explains how to examine difficult combinations of assumptions.

Sequence of Returns Risk Matters More Over Long Retirements

Investment returns do not necessarily arrive in a smooth line.

A portfolio can experience strong returns, weak returns and major downturns at different points in retirement.

The sequence of those returns can matter, particularly when you are withdrawing money.

A long retirement gives you more time exposed to different market conditions.

Learn more in What Is Sequence of Returns Risk? .

Monte Carlo Can Help Test Longevity

One way to examine retirement uncertainty is through Monte Carlo simulation.

Instead of relying on one exact sequence of investment returns, a Monte Carlo retirement simulation can examine many possible combinations of outcomes.

This can help show how a retirement plan behaves under a range of possible market and economic conditions.

Longevity can be incorporated into the broader planning process by evaluating what happens when the retirement period is extended.

Monte Carlo results are not predictions or guarantees. They are another tool for understanding uncertainty.

Read What Is a Monte Carlo Retirement Simulation? to learn more.

What If You Live to 100 in Retirementize?

This is exactly the kind of question that can be handled as a retirement What-If scenario.

Start with your normal retirement plan.

Then test a longer lifespan.

For example, suppose your base plan assumes retirement income is needed through age 90. You could create a scenario that extends the retirement period to age 100.

Then examine what changes.

• Does the portfolio continue to support your planned spending?
• How much additional investment income is required?
• How do pensions and government benefits affect the result?
• How does inflation affect later-life spending?
• Does the withdrawal strategy remain reasonable?
• Does the plan still have flexibility?
• What happens under less favorable investment assumptions?

Retirementize can be particularly useful for this type of scenario because the retirement projection can incorporate multiple sources of income, investments, accounts, pensions, government benefits, spending and taxes.

The goal is not to produce a magical "age 100 number."

The goal is to understand what your financial plan looks like if your retirement lasts much longer than expected.

Living to 100 Does Not Mean You Need to Save Forever

Longevity planning should not turn into an exercise in permanent pessimism.

The objective is not to assume that every possible risk will happen at the same time.

Nor does it mean that you need to accumulate an enormous portfolio before you are allowed to retire.

Instead, longevity testing can help you understand where your plan is strong and where it is vulnerable.

If your plan is very sensitive to living longer, you might explore additional income, lower spending, a different retirement age or a different withdrawal strategy.

If the plan remains strong through a much longer retirement, that can provide useful confidence.

Longevity Planning Is About Flexibility

A strong retirement plan does not necessarily need to predict the exact year you will die.

It needs to give you options if reality differs from your assumptions.

For example, if you live longer than expected, you may have several possible responses:

• Adjust discretionary spending.
• Change the timing of investment withdrawals.
• Use more reliable income sources.
• Change housing plans.
• Earn some additional income.
• Review investment strategy.
• Reassess your overall retirement plan.

Flexibility can be just as important as having a large portfolio.

Test Longevity Before You Need to

One of the biggest advantages of retirement planning software is that you can test a difficult scenario while you still have time to respond.

If your retirement plan shows a potential problem at age 95, discovering it before retirement is much more useful than discovering it at age 95.

You may have decades to change the outcome.

You could save more, change retirement timing, reduce spending, improve tax efficiency or reconsider how you plan to use your assets.

That is why testing is such an important part of retirement planning.

Longevity Risk and Financial Independence

Financial independence is often described as having enough assets and income to support the life you want without depending entirely on employment.

But financial independence is more than reaching a particular portfolio balance.

You also need to understand whether those resources can support your lifestyle for as long as you may need them.

A person who needs $70,000 per year for 15 years has a different financial independence requirement from someone who needs the same income for 40 years.

Longevity is therefore part of the financial independence calculation.

Our article How to Create a Financial Freedom Plan explains how to bring these different financial factors together.

How to Test Living to 100

A practical longevity test can be simple.

Start with your normal retirement plan and then make one major change: extend the end of the projection.

For example:

1. Build your normal retirement plan.
2. Choose your expected retirement age.
3. Enter your expected spending.
4. Include investments, pensions and government benefits.
5. Account for taxes and other major financial factors.
6. Test your expected lifespan.
7. Extend the plan to age 100.
8. Compare the results.
9. Test lower investment returns or other difficult assumptions.
10. Identify changes that could strengthen the plan.

This turns longevity from an abstract concern into something you can actually evaluate.

What If the Plan Does Not Last to 100?

Do not panic.

A stress test is supposed to identify potential weaknesses.

If your plan does not support the lifestyle you want through age 100, explore the variables that can be changed.

Could you retire later?

Could you save more?

Could you reduce spending?

Could you create additional retirement income?

Could you change when certain accounts are used?

Could you change the timing of a pension or government benefit?

Could you make your spending more flexible?

These questions are far more useful than simply concluding that the original plan "failed."

Test Longevity With Other Retirement Risks

The strongest retirement stress tests do not isolate every risk forever. Eventually, it can be useful to combine them.

For example:

• Retire early.
• Live to 100.
• Experience lower investment returns.
• Experience higher inflation.
• Spend more during the first years of retirement.

You may not believe all of these events will happen together. The point is to discover how much resilience your plan has.

Our article 10 Retirement What-If Scenarios Everyone Should Test provides more scenarios to consider.

PLAN. IMPROVE. TEST. CONFIRM. REPEAT.

Longevity risk is another reason retirement planning should be an ongoing process.

PLAN. Build a retirement plan based on your current finances, goals and assumptions.

IMPROVE. Look for ways to strengthen your retirement income, savings, spending and overall financial strategy.

TEST. Change your expected lifespan. See what happens if you live to 95, 100 or beyond.

CONFIRM. Determine whether the plan still supports the lifestyle and financial flexibility you want.

REPEAT. Revisit the plan as your circumstances, assumptions and goals change.

PLAN. IMPROVE. TEST. CONFIRM. REPEAT.

Frequently Asked Questions

What is longevity risk?

Longevity risk is the possibility that you live longer than your retirement savings and income were designed to support. The longer your retirement lasts, the longer your financial resources may need to provide income.

Should I plan for retirement until age 100?

Age 100 can be useful as a stress-test scenario. It does not mean you need to assume you will live exactly to 100. Testing a longer lifespan helps reveal how sensitive your retirement plan is to longevity.

Why is longevity risk important for early retirement?

Retiring earlier can create a longer retirement period. Your investments may need to provide income for more years, while you may also have fewer years of employment income and contributions.

How does inflation affect longevity risk?

A longer retirement means more years exposed to changing prices. Even moderate inflation can have a significant effect on purchasing power over several decades.

Do pensions reduce longevity risk?

A pension that provides continuing income can reduce the amount your investment portfolio needs to provide. The effect depends on the pension's terms, timing, amount and other aspects of your financial situation.

Can government benefits help with longevity risk?

Government benefits can provide an important source of retirement income. Integrating their timing and amounts into your overall retirement plan can help you understand how much income your portfolio needs to provide.

What should I do if my retirement plan does not last to age 100?

Treat the result as information rather than a failure. Test possible changes such as saving more, retiring later, reducing spending, changing income timing or adjusting your withdrawal strategy. Then run the plan again.

Build a Retirement Plan That Can Handle a Long Life

Nobody knows exactly how long they will live.

That uncertainty does not have to prevent you from making a retirement plan.

Instead, use it as a reason to test your plan.

See what happens if you live to 90. Then 95. Then 100. Explore what happens when you combine longevity with lower investment returns, higher inflation or an earlier retirement date.

If the plan remains strong, you have learned something valuable.

If the plan becomes vulnerable, you have also learned something valuable, because you still have time to make changes.

Retirement planning is not about predicting the exact future. It is about understanding enough possible futures to make better decisions today.

PLAN. IMPROVE. TEST. CONFIRM. REPEAT.

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