When I first heard the term “longevity risk”, I figured it was medical: a hazard associated with some new fountain-of-youth drug or diet. Silly me! It used to refer to the risk borne by pension funds or life insurance companies that guaranteed lifetime benefits. Then employer pension plans migrated to more volatile 401(k) plans. Then the market crashed and 401(k)s turned into 201(k)s. “Longevity risk” is now the chilly term for the prospect that more and more Americans will outlive their retirement savings, spending their final years despairing and destitute.
Life expectancy in the U.S. continues to rise (from 70.8 years in 1970 to 77.8 today, and projected to reach 79.2 years by 2015), as noted in a Reuters story about this emerging "longevity risk.” Its poster child is 84-year-old Edie Stark, who thought that she and her ailing 88-year-old husband were safely ensconced in an upscale Miami assisted living complex. Now that their assets have tanked, that may no longer be the case — and forget about leaving something to the kids. The retirement scenario looks even grimmer for the boomer offspring of these worried octogenarians, thanks mainly to the erosion of pension plans. We’re going to have to work longer than we’ve planned — if we’ve planned at all.