Longevity Risk: Planning for a 30-Year Retirement

There is a paradox at the heart of modern retirement planning: advances in medicine and living standards mean we are more likely than any previous generation to live into our 90s — yet most financial plans are designed around life expectancies that would have seemed optimistic a generation ago and are already being exceeded in practice.

A 65-year-old man in the UK today has roughly a 25% chance of living to 92; a 65-year-old woman has a roughly 25% chance of living to 95. For couples, the probability that at least one partner lives beyond 90 is over 50%. These are averages across the population, including those in poor health. For a healthy, non-smoking, HNW individual with access to good healthcare, these expectations are likely conservative.

Yet research consistently shows that people systematically underestimate their own life expectancy when asked to plan for retirement. This is longevity risk — not the risk of dying young, but the risk of living longer than your money lasts.

Investments can fall as well as rise. This article does not constitute financial advice. Seek regulated advice before making retirement decisions.

Why Longevity Risk Is Underestimated

Several psychological and practical factors conspire to cause systematic underestimation of longevity:

Recency bias: most people have lost grandparents or parents in their 70s or early 80s. This creates a subconscious anchor that their own life expectancy is similar, even if medical advances and their own better health status make 90+ highly plausible.

Availability heuristic: widely publicised causes of death (heart disease, cancer) in middle-aged and younger old people are cognitively more "available" than the quieter reality of many people living into their mid-to-late 90s.

Optimism about spending: people often assume their spending needs will decline in retirement, allowing the portfolio to last longer. In practice, the retirement spending curve is more complex: there is often a spending surge in early active retirement (travel, social activities), followed by a plateau, followed by a late-retirement rise as healthcare and care costs escalate.

Discomfort with the topic: planning for extreme old age requires confronting uncomfortable realities about health, dependence, and mortality. Many people prefer not to think about it — which leads to underplanning.

The Mathematics of a 30-Year Retirement

To understand why longevity risk is genuinely significant, consider the numbers.

A retiree at 65 with a £1 million portfolio who draws £40,000 per year (4%), adjusted for 2.5% inflation annually, faces very different outcomes over different time horizons:

• 20 years (to 85): in most historical market scenarios, the portfolio survives, though those unlucky with timing (retiring before a severe bear market) may find it depleted.
• 30 years (to 95): the probability of portfolio depletion is significantly higher. Even at 4% (considered a 30-year safe withdrawal rate in US research), there are historical scenarios where the portfolio depletes.
• 35+ years (to 100): at 4%, the failure rate in historical research exceeds 10% — meaning in more than one in ten historical scenarios, the portfolio depletes before 35 years.

For an early retiree at 55 planning for 40 or 45 years, the mathematics argue strongly for a lower initial withdrawal rate (3–3.5%) and significant equity exposure throughout retirement.

The Healthcare Cost Escalation

A distinctive feature of longevity risk is that costs tend to escalate precisely when the portfolio is most depleted. An 85-year-old is drawing down their portfolio later in its life — when it is smaller — and simultaneously facing higher healthcare costs than they did at 65. The two trends interact to create the most financially challenging period of retirement.

Healthcare spending in the last five years of life is typically substantially higher than in any comparable earlier period, driven by chronic disease management, hospitalisation, and potentially residential care. For an internationally mobile retiree returning to the UK for care (or remaining in a high-cost private healthcare environment abroad), these costs can be very significant.

Planning for longevity therefore requires not just extending the income period but also modelling the changing composition of expenditure — with healthcare and care costs rising in absolute terms as the retiree ages.

Longevity Risk and the Gender Gap

Women face more acute longevity risk than men for a straightforward reason: they live longer, on average, and are often younger than their male partners, meaning they may spend more years as widows. In the UK, as of 2026, the average life expectancy gap between men and women at age 65 is approximately 3–4 years.

Women are also more likely to have career interruptions, lower lifetime earnings, and smaller pension pots than men — a combination that makes longevity risk a particularly significant planning challenge for women. Financial plans for couples should model the surviving spouse's income needs explicitly and ensure adequate provision in the event of the first death.

Strategies for Managing Longevity Risk

Annuitisation: The Longevity Insurance Solution

A lifetime annuity is the only financial product that explicitly transfers longevity risk to an insurance company. In exchange for a lump sum, the insurer guarantees income for life — regardless of how long that life turns out to be. An annuitant who lives to 102 receives income to 102; one who dies at 72 ceases to receive income (unless a guaranteed period was included).

The case for at least partial annuitisation strengthens with three factors:

• Lower health status (shorter life expectancy makes annuities less attractive).
• Higher interest rates (which improve annuity rates — and they are better in 2026 than for much of the previous decade).
• Absence of other guaranteed lifetime income sources.

For those with only modest state pension income and no defined benefit pension, purchasing a partial annuity to cover essential expenditure — perhaps £15,000–£25,000 per year — provides a guaranteed floor that removes the core longevity risk from that portion of the retirement plan.

Deferred Annuities and Longevity Insurance

One product specifically designed to address longevity risk is the deferred annuity (sometimes called longevity insurance): you pay a lump sum today in exchange for a guaranteed income that starts at a specified advanced age — say, 85 or 90. If you die before that age, the premium is typically lost; if you live beyond that age, the income continues for life.

These products cover the "tail" of the longevity risk distribution at relatively low cost. Because most premium income funds the income for a minority of surviving policyholders, they offer high levels of income per pound invested for long-lived individuals. Availability in the UK market is limited but products do exist; globally, they are more available in some markets.

Dynamic Drawdown with Longevity Buffering

For those preferring drawdown, explicit longevity buffering involves:

• Using a lower initial withdrawal rate (3–3.5% rather than 4%).
• Maintaining a higher equity allocation throughout retirement than conventional wisdom suggests.
• Reviewing and potentially reducing withdrawals in years of poor portfolio performance.
• Purchasing a deferred annuity (or converting a portion to an immediate annuity) at a specific review age (e.g., 75 or 80) if the portfolio has not grown sufficiently.

This staged approach preserves flexibility in early retirement while building in a structural backstop against extreme longevity.

Equity Exposure Through Retirement

The evidence on equity exposure in retirement is clear: a portfolio that de-risks entirely to bonds and cash in retirement typically cannot sustain withdrawals in real terms over 30+ years, because bond and cash returns over long periods tend to barely exceed inflation (and in some periods, fall behind).

A 65-year-old with a 30-year horizon needs their portfolio to grow in real terms — which requires meaningful equity exposure. Research suggests that a retirement portfolio with 40–60% equity exposure over a long retirement produces better outcomes (including higher survival probability) than one with 0–20% equity exposure, despite higher short-term volatility.

The intuitive resistance to holding equities in retirement — driven by a focus on short-term volatility — is financially counterproductive over long horizons. Volatility tolerance in retirement can be managed through bucket strategies and cash buffers; long-term purchasing power cannot be managed without growth.

Part-Time Income and Flexible Spending

Two of the most powerful longevity risk mitigants are not purely financial:

Part-time work or consulting in early retirement extends the period over which the portfolio compounds and reduces the annual withdrawal requirement. Even £15,000–£20,000 per year of earned income dramatically extends portfolio sustainability. Many early retirees discover that low-stress consulting or non-executive board work provides social engagement alongside financial benefit.

Flexible spending — the willingness to reduce discretionary spending by 10–15% in poor market years — substantially improves plan resilience. A retiree who treats the withdrawal rate as an entitlement regardless of market conditions fares significantly worse than one who maintains modest flexibility.

Putting It Together: The Long-Term Plan

A robust 30+ year retirement plan for an internationally mobile retiree should include:

1. A guaranteed income floor covering essential expenditure, assembled from state pensions, defined benefit pensions, and potentially a partial annuity.
2. An investment portfolio with meaningful equity exposure (40–60%), genuinely globally diversified, managed to a dynamic withdrawal rate (3–3.5%).
3. An inflation-protection strategy ensuring that both the guaranteed income floor and the portfolio grow broadly in line with or above inflation over time.
4. A care cost provision — either ring-fenced reserves, insurance, or a plan for how care costs will be funded from the wider portfolio if required.
5. Regular reviews — at least annually — with the explicit objective of checking that the plan remains adequate for the retiree's actual age, health status, and financial position.

How Global Investments Can Help

Longevity risk is one of the areas where structured financial advice from an experienced adviser adds the most long-term value. The decisions made — about withdrawal rates, equity exposure, annuity purchase, and care cost provision — will play out over decades, with diminishing opportunity to correct mistakes made early in retirement.

Global Investments has guided internationally mobile retirees through these decisions for over 32 years. We model genuine long-term outcomes, test plans against adverse scenarios, and provide independent advice unconstrained by product bias. Contact us to review the longevity resilience of your retirement plan.

Investments can fall as well as rise. Income and capital are not guaranteed. This article is for information only and does not constitute regulated financial advice. Always seek advice tailored to your personal circumstances.