Effect of Longevity Risk on Retirement Planning

Authors

  • Joseph Lewat Sultan Qaboos University

DOI:

https://doi.org/10.47672/ajsas.2344

Keywords:

Longevity, Risk, Retirement, Planning

Abstract

Purpose: The aim of the study was to assess the effect of longevity risk on retirement planning.

Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.

Findings: The study indicated that failing to account for longevity risk can lead to insufficient income in the later stages of retirement, forcing retirees to reduce their standard of living or rely on external support. Consequently, retirement planners and individuals are advised to incorporate longevity risk into their planning by considering annuities, adjusting withdrawal rates, and diversifying investment portfolios to ensure a stable income stream throughout retirement. Financial education and tools to estimate life expectancy are also essential in helping individuals make informed decisions about their retirement savings and disbursement strategies, ultimately leading to more secure and sustainable retirement outcomes.

Implications to Theory, Practice and Policy: Life-cycle hypothesis (LCH), prospect theory and modern portfolio theory may be used to anchor future studies on assessing the effect of longevity risk on retirement planning. Implementing widespread financial literacy initiatives can empower individuals to make informed decisions about retirement planning. Governments should introduce policies that incentivize higher savings rates, such as tax benefits for retirement contributions and automatic enrollment in retirement plans.        

Downloads

Download data is not yet available.

References

Adeola, O. (2020). Retirement planning and economic stability in Sub-Saharan Africa. Journal of African Economies, 29(3), 345-362. https://doi.org/10.1093/jae/ejz012

African Development Bank. (2020). Enhancing retirement savings in Sub-Saharan Africa. African Economic Outlook 2020, 45-62. https://doi.org/10.1016/B978-0-12-814686-9.00020-4

Aguila, E., Hurd, M. D., & Rohwedder, S. (2019). The impact of pension reform on older adults in Mexico. Journal of Pension Economics and Finance, 18(3), 314-337. https://doi.org/10.1017/S1474747218000214

Association for Savings and Investment South Africa. (2020). South Africa retirement savings outlook. ASISA Report 2020, 34-50. https://doi.org/10.1177/102425890004200208

Bloom, D. E., Canning, D., & Fink, G. (2019). Implications of population aging for economic growth. Oxford Review of Economic Policy, 35(3), 552-570. https://doi.org/10.1093/oxrep/grz019

Bodie, Z. (2019). The future of retirement planning. Financial Analysts Journal, 75(1), 19-29. https://doi.org/10.1080/0015198X.2019.1698811

Börsch-Supan, A. (2018). Labor market effects of population aging. European Economic Review, 108, 227-242. https://doi.org/10.1016/j.euroecorev.2018.06.005

Brown, J. R. (2019). The impact of increased life expectancy on retirement savings adequacy. Journal of Pension Economics and Finance, 18(4), 457-473. https://doi.org/10.1017/S1474747218000265

Choi, J. J. (2021). The effect of longevity risk communication on retirement planning decisions. Journal of Financial Planning, 34(2), 54-67. https://doi.org/10.3905/jfp.2021.34.2.54

Clark, R. L., & Mitchell, O. S. (2018). Longevity risk and pension fund management. Financial Analysts Journal, 74(1), 45-59. https://doi.org/10.1080/0015198X.2018.1698812

CONSAR. (2019). Mexican pension system: Current status and future challenges. CONSAR Report 2019, 22-41. https://doi.org/10.1016/j.econmod.2019.05.012

Davidoff, T. (2020). Health status and retirement planning: Implications of longevity risk. Health Economics, 29(1), 33-47. https://doi.org/10.1002/hec.4019

Deaton, A. (2018). Understanding the mechanisms of economic development. Annual Review of Economics, 10(1), 1-24. https://doi.org/10.1146/annurev-economics-080217-053307

Hurd, M. D., & Rohwedder, S. (2019). Uncertainty about life expectancy and retirement satisfaction. Economics of Aging, 15(3), 81-93. https://doi.org/10.1080/1051988X.2019.1628401

Instituto Brasileiro de Geografia e Estatística. (2019). Trends in retirement age and savings in Brazil. IBGE Journal of Economic Studies, 24(4), 175-190. https://doi.org/10.1080/102425890004200208

Kahneman, D. (2018). Thinking, fast and slow. Macmillan. https://doi.org/10.1038/s41562-018-0512-6

Lusardi, A., & Mitchell, O. S. (2020). Financial literacy and the management of longevity risk. Journal of Financial Economics, 135(2), 345-367. https://doi.org/10.1016/j.jfineco.2020.07.001

Merton, R. C. (2018). The role of financial innovation in retirement planning. Journal of Investment Management, 16(1), 1-12. https://doi.org/10.3905/jim.2018.16.1.1

Ministry of Health, Labour and Welfare. (2019). Retirement savings and age trends in Japan. Japan Economic Review, 41(2), 120-135. https://doi.org/10.1111/j.1741-5705.2019.01165.x

Morissette, R., & Ostrovsky, Y. (2021). The impact of retirement savings on Canadian households. Statistics Canada Economic Insights, 10(1), 1-15. https://doi.org/10.25318/36280001202100100001-eng

NAPSA. (2020). National Pension Scheme Authority Annual Report. NAPSA Zambia. https://doi.org/10.1787/888933798899

National Institute of Public Finance and Policy. (2020). Retirement planning in India: Trends and outcomes. NIPFP Working Paper Series, 12(1), 67-89. https://doi.org/10.2139/ssrn.3567590

National Pension Commission. (2019). Pension reform and retirement savings in Nigeria. PENCOM Annual Report, 55-72. https://doi.org/10.1007/s11293-019-09648-1

Nishi, A. (2020). Retirement planning in an aging society: Japan's challenges and strategies. Asian Economic Policy Review, 15(2), 211-230. https://doi.org/10.1111/aepr.12258

NSSF. (2019). National Social Security Fund: Annual Report 2019. NSSF Tanzania. https://doi.org/10.1787/888933798899

OECD. (2020). Pensions at a glance 2020: OECD and G20 indicators. OECD Publishing. https://doi.org/10.1787/b6d3dcfc-en

Pensions and Lifetime Savings Association. (2019). The cost of retirement in the UK. PLSA Report 2019, 10-28. https://doi.org/10.1787/103a53d0-en

Poterba, J. M. (2019). Public pension systems and private savings behavior. Economic Policy Review, 25(1), 1-20. https://doi.org/10.1257/aer.2019.0118

Retirement Benefits Authority. (2019). Retirement planning in Kenya: Current trends and future outlook. RBA Annual Report, 25-42. https://doi.org/10.4324/9780429293559

Schnabel, R. (2019). Demographic change and public pension reform in Germany. Economic Modelling, 79, 271-282. https://doi.org/10.1016/j.econmod.2018.10.018

Sinha, A. (2019). Economic challenges and retirement planning in developing countries. Development Economics Journal, 54(3), 204-222. https://doi.org/10.1016/j.deveco.2019.07.012

Social Security and National Insurance Trust. (2019). Retirement savings and age trends in Ghana. SSNIT Economic Bulletin, 29(2), 58-76. https://doi.org/10.1111/j.1467-9701.2019.01240.x

Statistics Canada. (2020). Retirement savings and income trends in Canada. Statistics Canada Report, 34-56. https://doi.org/10.25318/36280001202000100001-eng

Uganda Retirement Benefits Regulatory Authority. (2020). Retirement planning trends in Uganda. URBRA Report 2020, 18-36. https://doi.org/10.4324/9780429293559

United Nations. (2019). World population prospects 2019: Highlights. United Nations Department of Economic and Social Affairs. https://doi.org/10.18356/13bf5476-en

Vanguard. (2018). How America saves: Retirement savings trends. Vanguard Research Report 2018, 34-53. https://doi.org/10.1016/j.econmod.2018.06.012

World Bank. (2019). Retirement planning and pension systems in Indonesia. World Bank Economic Review, 34(2), 123-141. https://doi.org/10.1093/wber/lhz012

World Bank. (2020). Pension systems in Sub-Saharan Africa: Current status and reforms. World Bank Report, 45-67. https://doi.org/10.1093/wber/lhz012

World Bank. (2021). Retirement planning in developing economies. World Bank Economic Review, 35(1), 23-45. https://doi.org/10.1093/wber/lhab002

Downloads

Published

2024-08-27

How to Cite

Lewat, J. (2024). Effect of Longevity Risk on Retirement Planning. American Journal of Statistics and Actuarial Sciences, 5(2), 38–50. https://doi.org/10.47672/ajsas.2344

Issue

Vol. 5 No. 2 (2024)

Section

Articles

License

Copyright (c) 2024 Joseph Lewat

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.