Longevity risk

Longevity risk is the financial risk created by uncertainty about how long a person may live and how long their assets may need to support them.

It is unusual because living longer is personally desirable, while financially it can increase the period over which income and capital must be sustained.

The planning horizon is uncertain

A retirement plan might be modelled to age 85, 90 or 95.

But an individual does not know in advance which horizon will prove appropriate.

The difference can be substantial.

Someone retiring at 65 and living to 85 requires approximately 20 years of retirement funding. Living to 100 extends that horizon to approximately 35 years.

Those additional years can affect:

• cumulative spending;
• exposure to inflation;
• portfolio withdrawals;
• healthcare and care costs;
• investment horizon;
• taxation;
• timing of asset sales; and
• the estate remaining later in life.

Lifespan is only part of the problem

Financial outcomes can also depend on healthspan.

Two people who both live to age 95 may experience very different financial paths if one remains healthy and independent for most of retirement while the other experiences a prolonged period of illness or care dependency.

Bioanalytix therefore separates the question:

How long might I live?

from the equally important question:

What might the financial path to that age look like?

Why a single life-expectancy assumption can be misleading

Population life expectancy is useful for describing groups.

It is not a personal expiry date.

Planning around only an average can obscure the financial consequences of living substantially longer than average.

A resilient plan should therefore be tested across multiple longevity scenarios.

Where biological evidence fits

Age, sex, family history, health, lifestyle and many other factors can provide information relevant to longevity.

Genetic evidence may add another layer of context.

Bioanalytix does not convert those inputs into a predicted date of death.

Instead, the objective is to improve the questions asked of the financial model.

For example:

• What happens if retirement lasts ten years longer?
• What if health-related expenditure rises later in life?
• What if I retire earlier but live longer?
• What level of spending remains sustainable?
• How much liquidity should remain available?
• What happens to my estate under different longevity scenarios?

Planning for a distribution, not a date

The Bioanalytix approach is therefore to think about longevity as a distribution of possible futures.

The objective is not to identify the one future that will occur.

It is to understand whether the financial plan remains resilient when the future differs from the central assumption.