Living a long and healthy life is something most people hope for. At the same time, a longer life also means your retirement savings need to last longer. This challenge, known as longevity risk, is the possibility of outliving your wealth and available income, making it one of the top concerns retirees face today.
Average life expectancy continues to increase. According to the latest federal estimates, Americans are living longer than ever, with U.S. life expectancy reaching a record high of 79.4 years in 2025, fully recovering from the pandemic-era decline. In fact, those who reach age 65 can expect to live nearly two more decades on average, making it more important than ever to plan for a retirement that could last 20 years or more.
No one can predict exactly how long they will live; factors such as health, lifestyle, medical history, and genetics all play a role in determining your unique lifespan. From a financial perspective, living a longer life can significantly increase the cost of retirement. The longer you live, the more years you’ll need your savings and income to support your lifestyle. As a result, longevity can affect many areas of your retirement budget, including:
Healthcare
Healthcare expenses are a huge chunk of any retirement budget—even with Medicare. According to Fidelity’s latest Retiree Health Care Cost Estimate, a healthy 65-year-old couple retiring today can expect to spend an average of $345,000 in today’s dollars on Medicare premiums and out-of-pocket health care expenses throughout retirement, not including long-term care. As life expectancy increases, so does the likelihood of needing additional medical care. Living longer not only means paying for more years of routine health care, but it also increases the chance of developing chronic conditions or other serious health issues that can further raise costs.
Incapacitation
Your odds of becoming incapacitated also increase with age, which could lead to the need for nursing care. In fact, many people over 65 may end up needing some form of assistance. The average cost of a semi-private room in a nursing facility can exceed $9,000 per month (over $100,000 per year).
While Medicaid can help cover nursing home costs, qualifying typically requires meeting strict income and asset limits, which may mean spending down a significant portion of your countable assets. Planning ahead may help you preserve more of your wealth while preparing for future care needs.
Inflation
Prices generally rise over time due to inflation. The Federal Reserve’s aims to keep inflation at an average rate of about 2% over the long run because it considers that level consistent with price stability and a healthy economy. Even so, inflation gradually reduces your purchasing power, meaning the same amount of money buys less over time. The longer you live in retirement, the more you’ll likely spend on housing, food, utilities, healthcare, and other everyday expenses. Even moderate inflation, over decades, can have a dramatic effect on your retirement budget.
Excess Withdrawal and Inadequate Income
If your retirement portfolio isn’t designed to provide enough income that will last for decades, you may face the risk of running out of money. Unexpected family expenses or needing to withdraw money during a market downturn can affect your nest egg negatively for the long term (kind of like dollar-cost-averaging in reverse). Likewise, withdrawing money during a market downturn, known as sequence of returns risk, can have a lasting impact on the value of your portfolio.
The death of a spouse is also a risk to your income, as Social Security benefits will drop (only one check—the largest—will continue to be paid by SSA) and the tax rate for singles is higher than for married spouses.
The purpose of this article isn’t to create fear. It’s to encourage proactive, realistic retirement planning. By preparing for longevity risk today, you can build a strategy designed to help support the retirement you envision, no matter how long it lasts.
Let’s make some solid plans! Contact Richard Ngin of Foundation Asset Management today to review your unique financial situation and create a personalized retirement plan designed around the life you want to live.
This content is for informational purposes only and should not be considered tax, legal, or investment advice. All investing involves risk, including the possible loss of principal. Tax laws, contribution limits, and plan rules may change. Individuals should consult with qualified financial, tax, or legal professionals regarding their specific situation.
Sources:
https://www.cdc.gov/nchs/fastats/life-expectancy.htm
https://www.retirementliving.com/aging-in-place/life-expectancy-statistics
https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
https://www.genworth.com/aging-and-you/finances/cost-of-care.html
