For some investors longevity risk is an increasing area of concern. The risk of outliving retirement savings is a top concern among investors planning for retirement. As with any investing risk, it cannot be eliminated. It can only be managed through asset allocation, diversification, and prudent planning.
We may be excited to be living longer, but can our retirement strategies keep up? New research shows that financial advisors may need to reassess how they discuss retirement target date planning with clients.
Trends in employment have always impacted how financial advisors approach planning with their clients. When it comes to changes, no single issue may have had more of an impact on retirement income planning than decline of the pension. But the interplay of the trends of remote work, longevity, and retirees’ plans for duration of retirement may come close. That is, at least as to scope if not as to scale.
The shift from full-time presence in an office environment to at least occasional part-time work from a remote location, such as a home office, has been widely accepted as a major lasting trend from the pandemic. It is also a surprisingly beneficial one for some populations, including those with disabilities and older workers.[1] Remote work helped older workers with a disability to stay employed, instead of moving towards retirement. One study found a 10% increase in the employment rate due to remote work for those employees. Studies of these populations are often limited in applicability since people who work remotely are “much more likely to be college educated, earn substantially more per week, and are less likely to work in physical industries.”[2] For example, for those working remotely over the age of 60, they were almost twice as likely to have a bachelor’s degree. A new study showed that there is a significant impact, a nearly 15% reduction, on retirement for those working remotely. A key takeaway from the study is that those who want to work longer may have opted to navigate towards work that allows for remote options. This new research opens doors for more than older clients. It could mean that younger clients may want to consider how to use choices in their mid-career to help steer them towards a later retirement target date.
Additional research also shows that later retirement target dates could be essential as there has been a reversal in the trend of decreasing life expectancy. After four years of a mild dip in life expectancy, the U.S. has begun to turn around and make up ground.[3] On an individual level, longevity (an individual measure of life expectancy) impacts retirement target date setting. And variance is present in longevity among different demographics. That may mean that distinct groups have different longevity risks, the concern over living beyond one’s retirement income. Specifically, those with the greatest longevity tend to be white, female, and with higher education. Research indicates regional variances in longevity as well, indicating a difference in longevity risk among clients in different states.
The variance in longevity has stayed mostly stable for the last decade. That is, the difference among individuals from the mean. By staying stable, this can help reduce uncertainty in retirement planning. However, new data shows that for certain groups, namely Black Americans and those with less education, longevity variation has increased. This trend, of increasing longevity variation, is not as “sticky” as remote work, meaning, it is unclear if this data will change over time.
Whether or not life span, and longevity variance, will continue to increase, retirees seem to continue to plan to retire earlier and live longer. New research from the Transamerica Institute confirms that retirees plan to live to age 90, despite life expectancy remaining firmly below 80 for the last decade. In that survey, the median expected duration of retirement for respondents was about three decades.[4]
Given that new research, longevity risk could be an increasing area of concern for investors. The risk of outliving retirement savings is a top concern among people planning for retirement. As with any investing risk, it cannot be eliminated. It can only be managed through asset allocation, diversification, and prudent planning.
As mentioned above, remote work may help mitigate certain amounts of risk, by pushing the target retirement date back. Remote work may also allow for relocation, which could reduce longevity variance based on geography. For investors, including annuities in a retirement plan may also be an appropriate method of managing risk.
[1] https://crr.bc.edu/has-remote-work-extended-workers-careers
[2] https://crr.bc.edu/has-remote-work-extended-workers-careers
[3] Sources seem to disagree on whether this trend will continue and advance as much as 5 years to the population’s life expectancy globally by 2050 or will stagnate within the next few years and taper off. Compare https://www.healthdata.org/news-events/newsroom/news-releases/global-life-expectancy-increase-nearly-5-years-2050-despite with https://www.forbes.com/sites/joshuacohen/2025/01/01/alarming-stagnation-in-us-life-expectancy-continues. However, there is considerable agreement that the decline has ceased.
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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