Longevity Risk in Financial Planning: Funding a 30-to-40-Year Retirement

Longevity risk — the risk of outliving one's financial resources — is arguably the most underappreciated financial risk facing high-net-worth individuals today. Advances in medicine and healthcare have extended lifespans dramatically over the past century, but financial planning frameworks have not always kept pace. Many individuals planning for retirement still implicitly model their finances on life expectancies that are outdated, and underestimate the probability of living into their late eighties, nineties, or beyond.

For HNW individuals with sophisticated investment portfolios, the practical implications are significant. A retirement that lasts 35 or 40 years is qualitatively different from one lasting 20. Investment horizons remain long well into retirement. Inflation compounding over four decades can erode purchasing power severely. Long-term care costs can be very large. And the management of portfolio drawdown in a way that sustains income for an uncertain — but potentially very long — period requires careful structural thinking.

This guide explores the dimensions of longevity risk, the tools available to manage it, and the planning principles that apply for sophisticated investors with significant assets.

Nothing in this guide constitutes personal financial advice. Individual circumstances vary materially. Please seek qualified professional advice from a regulated financial planner before making decisions about retirement income.

Understanding Modern Life Expectancy

The Numbers Are Probably Better Than You Think

Many people rely on the "average life expectancy at birth" figure in their mental model of how long they might live. This figure is misleading for retirement planning for two reasons:

First, it includes all causes of death — including infant mortality and early-adult deaths — that are not relevant to someone already in good health approaching retirement. Conditional life expectancy at 65 (the expected additional years of life for someone already alive at 65) is materially higher than average life expectancy at birth.

Second, even conditional life expectancy is only the median — meaning half the relevant population lives longer than that figure. A financial plan built around the median life expectancy fails roughly half the time.

Using data from the UK Office for National Statistics (as of 2026 — life expectancy data changes and should be checked against current actuarial tables):

• A 65-year-old man can expect to live, on average, to approximately 85; a 65-year-old woman to approximately 87
• But there is a roughly 25% chance that a 65-year-old man lives to 92, and a roughly 10% chance he lives to 97
• For a couple aged 65, there is a roughly 50% probability that at least one partner lives to 92, and around a 20% probability that at least one lives to 97

Planning to the 95th percentile of survivorship — rather than to the average — is the appropriate framework for HNW individuals who have the resources to fund a long retirement and for whom the financial consequences of longevity are the primary risk.

The 30-to-40-Year Retirement: What It Means Financially

A retirement that begins at 60 and potentially extends to age 95 or beyond spans 35+ years. Over such a horizon:

Inflation becomes a severe risk: at 2% per annum inflation, purchasing power halves every 35 years. At 3% inflation (which has proved possible, as 2022 demonstrated), it halves in approximately 24 years. Retirement income that feels comfortable at 60 can feel very constrained at 85 if it is not inflation-linked.

Investment horizon remains long: a 60-year-old planning a 35-year retirement has an investment horizon similar to many institutional endowments. Prematurely de-risking the portfolio into low-return assets at age 60 is not necessarily appropriate — the capital needs to keep working for decades.

Compound growth of expenditure: care costs, home adaptations, and healthcare costs tend to rise steeply in the final decade of life. Average care home fees in the UK were approximately £60,000–75,000 per annum as of 2026 (and in higher-cost areas or for specialist dementia care, substantially more). These costs may need to be funded from the portfolio at a stage when it has already been drawn on for 20–25 years.

Annuity vs Drawdown in a Longevity Context

The central income strategy choice — whether to convert retirement savings into a guaranteed annuity or to remain invested and draw down — is most clearly framed through the lens of longevity risk.

Annuity: The Case For

A lifetime annuity converts a capital sum into a guaranteed income for life, regardless of how long the annuitant lives. The insurance company bears the longevity risk — if the policyholder lives to 105, the insurer still pays the income; if they die at 70, the insurer retains the unspent capital (subject to the terms of the policy).

For individuals who live longer than the mortality tables predict, annuities are genuinely good value — the longevity pooling means that long-lived annuitants benefit from the capital of those who die early. This is a genuine economic advantage that cannot be replicated through individual investment.

The case for annuity is strongest when:

• The individual has limited other sources of secure lifetime income (e.g. limited defined benefit pension, no rental income)
• Annuity rates are attractive relative to safe asset yields (annuity rates improve when interest rates are higher)
• The individual places high value on certainty and predictability over potential upside

Drawdown: The Case For

Income drawdown — remaining invested and withdrawing income as needed — preserves capital for potential appreciation, avoids the mortality cross-subsidy if you die earlier than average, and allows the portfolio to be inherited if not fully spent. For HNW individuals with significant assets, drawdown also provides more flexibility and allows the portfolio to be calibrated to specific spending needs over time.

The case for drawdown is strongest when:

• The individual has other secure income sources (state pension, defined benefit income, rental income) that cover basic living costs
• The portfolio is large enough that even significant adverse scenarios leave sustainable income remaining
• The individual has heirs to whom they wish to pass remaining capital
• There is a desire to participate in investment returns above those implied by annuity rates

Hybrid Approaches

Most sophisticated retirement planners advocate a hybrid approach: securing guaranteed income for basic living costs (through annuity, defined benefit pension, state pension, and rental income), while retaining a discretionary investment portfolio for discretionary expenditure, healthcare contingencies, legacy, and capital growth.

This "floor and upside" framework gives psychological security from the guaranteed income floor while preserving flexibility and growth potential from the investment portfolio. The proportions depend on individual circumstances, total assets, income requirements, and risk tolerance.

Sequence of Returns Risk in Retirement

Sequence of returns risk — the impact of the timing of investment returns on a portfolio from which regular withdrawals are being made — is a critical retirement planning concept. It is distinct from average return risk.

Consider two investors with identical average returns over a 20-year retirement, but in opposite orders. Investor A experiences strong returns in years 1–5 then moderate returns for the remainder. Investor B experiences poor returns in years 1–5 then strong returns thereafter. Because Investor B is withdrawing money during the poor early years — selling assets at depressed prices — their portfolio is permanently impaired and may run out well before Investor A's, even though both experienced the same average annual return.

The practical implications for retirement income planning:

• The first 5–10 years of retirement are critical — poor sequence during this window has a disproportionate long-term impact
• Cash buffers (1–2 years of expenditure in cash or short-term bonds) allow the equity portfolio to recover without forced selling during early-retirement market downturns
• Withdrawal rates that flex with market conditions — spending less when markets fall — significantly reduce sequence risk compared to rigid withdrawal schedules
• Annuitising a portion of income needs provides protection against sequence risk by removing some reliance on the investment portfolio

Long-Term Care: Quantifying the Risk

Long-term care costs represent one of the largest uninsured financial risks for most HNW individuals in the UK. Unlike most developed European countries, the UK does not provide comprehensive state-funded long-term care — individuals are expected to self-fund care costs until their assets are depleted to a defined threshold (currently around £23,250 for residential care in England, a figure that has remained low for many years — check current rules).

For HNW individuals, the relevant question is not whether the state will help, but how to plan for the possibility of very substantial care costs. Average care home stays last 2–3 years, but a minority of people — particularly those with dementia — may require care for 8–10 years, at costs that can exceed £700,000–800,000 over that period in quality facilities.

Planning strategies include:

• Pre-funding from the portfolio: maintaining a contingency reserve specifically for care costs, invested in relatively liquid, lower-volatility assets
• Long-term care insurance (LTCI): policies that pay a benefit if specified care needs arise. These are relatively expensive (reflecting actuarial uncertainty about care costs) and have become rarer as insurers have exited the market. Specialist providers remain, and the cost-benefit should be carefully assessed
• Immediate needs annuities (care annuities): if care is already required, an immediate needs annuity can convert a lump sum into a guaranteed care payment, protecting against the risk of living much longer than expected while in care. These are purchased at the point care begins rather than in advance

Planning for the 95th Percentile

Sound longevity risk management means constructing a financial plan that remains solvent under 95th-percentile survivorship scenarios — not just median projections. This requires:

1. Stress-testing against long life: use cashflow modelling software to test whether the plan remains viable if both partners of a couple survive to age 97 (or, more conservatively, 100)
2. Sustainable withdrawal rates: academic research (the "Trinity Study" and subsequent work) suggests that real withdrawal rates of 3.0–3.5% of initial portfolio value are generally sustainable over 30-year periods with high probability. Higher rates increase longevity risk. In a multi-decade plan, conservatism on withdrawal rate is warranted
3. Inflation-proofing: ensure that income sources include meaningful inflation linkage — either through inflation-linked annuities, TIPS/index-linked gilts, or equity growth that tends to outpace inflation over long periods
4. Portfolio composition in late retirement: maintaining some equity allocation even in late retirement is often appropriate for long-lived individuals, because the investment horizon remains genuinely long (a 80-year-old with a 15-year life expectancy can still benefit from equity exposure)
5. Regular plan reviews: financial plans should be reviewed at least annually, with cashflow modelling updated to reflect actual spending, portfolio performance, and any changes to health, family circumstances, or economic environment

International Dimensions

For internationally mobile HNW individuals, longevity planning has additional complexity. Healthcare systems, care costs, state pension entitlements, and tax treatment of pension assets all vary significantly across jurisdictions. The country in which you intend to spend your later years has a profound effect on the appropriate financial plan — a plan suitable for UK retirement may be wholly inadequate or unnecessarily conservative for retirement in Thailand or Cyprus.

Cross-border pension access, currency risk on income streams, and the availability (or absence) of care infrastructure in different countries all require careful consideration when building a longevity-resilient financial plan.

How Global Investments Can Help

Global Investments provides comprehensive financial planning for internationally mobile high-net-worth individuals, with deep experience in multi-jurisdictional retirement planning, sustainable withdrawal strategies, and the structuring of retirement income across multiple asset classes.

Our advisers can conduct detailed cashflow modelling of retirement scenarios — including 95th-percentile survivorship assumptions, long-term care cost scenarios, and multi-currency income streams — to provide a clear and honest picture of where your plan is resilient and where it requires strengthening.

We serve internationally mobile clients worldwide and understand the specific healthcare, care costs, and pension landscape in the jurisdictions in which our clients are likely to retire.

To discuss your longevity risk management strategy, please contact our advisory team.

This guide is for informational purposes only and does not constitute personal financial advice. Life expectancy projections are inherently uncertain. Investment returns, inflation, and care costs are unpredictable. Past performance of any investment strategy is not a reliable indicator of future returns. Tax treatment and state benefit rules depend on individual circumstances and jurisdiction and may change. Please seek qualified professional advice from a regulated financial planner before making retirement income decisions.