Longevity risk

Longevity risk is the possibility of living longer than the money lasts. It is the specific problem an annuity exists to solve, by transferring the risk to the insurer.

It is easy to underestimate, because planning tends to use an average life expectancy rather than the possibility of exceeding it.

Related terms

• Annuity A contract that converts a lump sum into an income, paid for life or for a set period.
• Deferred annuity An annuity where payments begin at a chosen future date rather than immediately.
• Vesting The date a deferred pension converts from accumulation into income.

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