Longevity risk (Langlebigkeitsrisiko)
Longevity risk is the risk that a person or household must finance more years of life than its plan assumed. It is not the risk of dying early. For an individual, unexpectedly long life can exhaust assets; for a pension pool or insurer, aggregate longevity above assumptions increases the cost of lifetime payments.
Why it matters
Life expectancy is an average, not an expiry date. A retirement plan built only to the average fails for many people who live longer. Couples face a joint horizon because assets may need to support spending until the second death, while some income or expenses change after the first.
Worked horizon example
Ignore investment returns, inflation, taxes, and emergencies. A €300,000 portfolio funding €20,000 per year lasts €300,000 / €20,000 = 15 years. If the same real spending must last 25 years, the undiscounted requirement is €500,000.
The arithmetic isolates longevity only. Real planning must also model investment returns, inflation, sequence risk, changing care costs, taxes, and income that continues for life.
Three ways cash flows differ
| Cash-flow type | Longevity exposure |
|---|---|
| Lifetime statutory or insured pension | Continues while the eligible person lives, subject to scheme rules |
| Fixed-term payout | Ends on a date even if the recipient survives |
| Investment portfolio | Can continue, but bears return, withdrawal, and depletion risk |
Pooling can transfer part of individual longevity risk: those who die earlier support payments to those who live longer. That transfer is different from earning a higher investment return and can involve reduced liquidity or inheritance value.
Use ranges, not one death date
Test several ages and a survivor scenario. Separate essential spending from flexible spending, then map which income streams last for life and which stop. Population projections help providers price a pool, but they do not predict one person's lifespan [1][2].
Check yourself
What is longevity risk for a retiree?
Ignoring returns and inflation, how many years can €300,000 fund €20,000 annual withdrawals?
Why does a couple often need a joint longevity horizon?
What does a lifetime annuity primarily transfer to a pool or insurer?
Sources
- Statistisches Bundesamt — Life expectancy and mortality tables for Germany, https://www.destatis.de/EN/Themes/Society-Environment/Population/Deaths-Life-Expectancy/_node.html (accessed 2026)
- OECD — Pensions Outlook 2024, longevity risk and retirement-income design, https://doi.org/10.1787/51510909-en (2024)