Accounting for longevity risk in retirement planning

S Singapore’s population continues to age rapidly, anticipating and understanding the unique needs and dreams of the elderly are more crucial than ever. Increasing longevity brings longer retirements, changing healthcare needs, and many other financial challenges.

Longevity risk refers to the likelihood that retirees live to such an advanced age that they deplete their retirement savings. It is impossible to know how long you will live and how long your savings must last. No doubt, the longer you live, the more money you will need to fund your retirement expenses. But for a pre-retiree to determine when to stop working and claim retirement benefits, as well as handle insurance needs, can be a daunting experience.

There is very little data on how people think about longevity or why they choose a particular age to estimate their lifespan. Yet how long people expect to live sets an essential context for longevity risk in retirement planning. For example, pre-retirees must predict changing expenses, estimate medical costs, and hedge against inflation as they age.