Longevity Risk — The Risk of Living Longer Than Your Money

Longevity risk is literally "the risk of living longer than the money you prepared." Living long is clearly a good thing, but if you planned your retirement funds to last only to a certain age and live longer than that, you run out of money in the later part of retirement.

It's a risk that doesn't hit home when you're young. But if you must live another 20 or 30 years with income greatly reduced after retirement, the very uncertainty of "not knowing how long you'll live" becomes the biggest financial risk.

According to Statistics Korea's 2024 Life Tables, the life expectancy of a child born in 2024 is 83.7 years overall (80.8 years for men, 86.6 years for women).

More important is the "remaining life expectancy" of those already near retirement age. As of 2024, a 65-year-old will, on average, live another 19.5 years for men and 23.7 years for women. In other words, a 65-year-old man lives on average to about 84 and a woman to about 89.

Moreover, this number keeps rising. The average remaining life expectancy at 65 (about 21.5 years averaged across men and women) has lengthened by about 1.6 years compared with a decade ago. As medical advances extend lifespan, the period your retirement funds must endure also lengthens.

There's one thing that must be pointed out here. Remaining life expectancy is an "average." That the average is 89 also means about half live longer than that.

If you plan your retirement exactly around "average lifespan," then if you live longer than average, you have no money in the later part. So it's safer to plan retirement funds not around the average but a bit longer—for example, to be able to endure even into your mid-90s. The assumption that "I might live longer than I think" is actually the starting point of solid preparation.

There are two representative directions for reducing longevity risk.

First, increasing "money that comes out until you die." Income that keeps being paid while you're alive, like the National Pension or a lifetime annuity, is actually more advantageous the longer you live. It amounts to transferring longevity risk from the individual to the system (the pension).

Second, withdrawing conservatively. The "4% rule," widely cited in retirement research, comes from studies (Bengen 1994, Trinity Study 1998) showing that if you withdraw only about 4% of assets in the first year of retirement and thereafter increase withdrawals only by inflation, past data generally lasted through a 30-year retirement. This is not a formula that guarantees the future but a reference point that gives you a sense that "withdrawing too much too fast is dangerous."