Will Your Retirement Savings Last? Running a Longevity Stress Test

The Planning Age Problem Costs Real Money

Most financial plans set a terminal age of 85. That number is not conservative. It is a median. Half the population outlives it. When you build a retirement income strategy around a median death age, you accept a coin-flip probability of running out of money before you die.

The Social Security Administration's actuarial tables show a 65-year-old man today has a life expectancy of 83.4 years. A 65-year-old woman has a life expectancy of 85.9 years. Those are averages dragged down by early deaths. A healthy 65-year-old non-smoker in the top half of the socioeconomic distribution should plan well past those figures.

The practical implication: the planning age should not reflect when you expect to die. It should reflect the age at which you are comfortable accepting portfolio depletion risk.

How a Longevity Stress Test Works

A longevity stress test runs the same portfolio through multiple terminal age assumptions and identifies at which point the portfolio fails. The inputs remain constant across each scenario. Only the time horizon changes.

The core formula is a present value of withdrawals comparison:

Annual Withdrawal = Portfolio Balance / ((1 - (1 + r)^(-n)) / r)

Where r is the real annual return (nominal return minus inflation) and n is the number of years in retirement. A longer n produces a smaller safe annual withdrawal for the same starting balance.

Run this three times: once targeting age 85, once targeting age 90, once targeting age 95. The gap between the age-85 withdrawal and the age-95 withdrawal is the longevity premium. That premium tells you the annual cost of buying yourself an extra decade of coverage.

Worked Example 1: The $1.2M Portfolio

A 62-year-old plans to retire at 65 with $1.2M in a traditional IRA. She expects a 5.5% nominal annual return and 2.5% inflation, producing a real return of approximately 2.93%. She wants to determine her safe annual withdrawal under three longevity scenarios.

Scenario A, planning to age 85 (20-year horizon): Annual Withdrawal = $1,200,000 / ((1 - (1.0293)^(-20)) / 0.0293) = approximately $79,800 per year

Scenario B, planning to age 90 (25-year horizon): Annual Withdrawal = $1,200,000 / ((1 - (1.0293)^(-25)) / 0.0293) = approximately $68,400 per year

Scenario C, planning to age 95 (30-year horizon): Annual Withdrawal = $1,200,000 / ((1 - (1.0293)^(-30)) / 0.0293) = approximately $61,400 per year

The longevity premium from age 85 to age 95 is $18,400 per year. If she withdraws at the age-85 rate and lives to 95, her portfolio depletes around age 87. She funds the last eight years of her life on Social Security alone.

Worked Example 2: The Married Couple With a Sequence-of-Returns Problem

A 64-year-old man retires with his 61-year-old spouse. Their combined portfolio in a mix of 401(k) and Roth IRA accounts totals $1.85M. They plan on $95,000 per year in withdrawals, in today's dollars, adjusted upward annually at 2.5% for inflation.

Their nominal portfolio return averages 6.2%. Their real return is approximately 3.6%.

At $95,000 per year in real withdrawals, the portfolio lasts approximately 31 years in a flat-return model. That takes the portfolio to age 95 for the husband, age 92 for the wife.

Now introduce a sequence-of-returns shock: the portfolio drops 28% in year two of retirement, from $1.85M to $1.33M. The same $95,000 real withdrawal in year two now represents a 7.1% withdrawal rate on the reduced balance. Recovery from that drawdown requires the remaining portfolio to compound at higher-than-average rates for years. Even at 6.2% nominal, the portfolio now depletes at approximately age 88 for the husband, well short of the wife's statistical life expectancy of 90-plus.

This is why sequence of returns matters more than average return. A stress test that accounts for a 25% to 30% early-retirement drawdown is not pessimistic. It reflects 2000 to 2002, 2008 to 2009, and 2022 market history.

The Four Variables That Change Every Projection

1. Real Return Assumption

The difference between assuming 4.0% real versus 3.0% real on a $1.5M portfolio over 30 years produces a gap of more than $400,000 in terminal balance. Use historical U.S. equity real returns of approximately 6.8% only if your portfolio is predominantly equities with a long enough horizon. A 60/40 portfolio in retirement should use a blended real return closer to 3.5% to 4.5%.

2. Inflation Rate

The Federal Reserve targets 2.0% PCE inflation. Healthcare inflation for retirees has run 4.5% to 5.5% annually over the past decade. If healthcare represents 15% or more of your projected retirement spending, your effective personal inflation rate exceeds the headline CPI figure. Model at 3.0% for a more accurate result.

3. Social Security Claiming Age

Delaying Social Security from age 62 to age 70 increases the monthly benefit by approximately 76% to 77%, depending on birth year. On a benefit of $2,100 per month at age 62, the age-70 benefit reaches approximately $3,696 per month. That guaranteed income reduces the withdrawal burden on the portfolio for every year of retirement, compressing the longevity risk materially.

4. Withdrawal Sequencing

Roth IRA accounts carry no required minimum distributions under current tax law. Traditional IRA and 401(k) accounts require distributions beginning at age 73 under the SECURE 2.0 Act. Sequence your withdrawals to minimize taxable income in early retirement, preserve the Roth accounts for late-life spending, and reduce the probability of large IRS-mandated distributions forcing higher Medicare IRMAA surcharges.

What a Stress-Tested Plan Looks Like

A properly stress-tested retirement plan produces three numbers:

First, a baseline annual withdrawal rate sustainable to age 95 using conservative real return and inflation assumptions. Second, the minimum portfolio balance at age 75 that signals the plan remains on track. Third, a contingency rule, typically a 10% to 15% spending reduction trigger, if the portfolio breaches that balance floor.

A plan with all three components does not just answer "will the money last?" It answers "what do I do if it starts to fall short, and when do I act?"

Run Your Numbers Against All Three Scenarios

The single most common retirement planning error is treating one projection as a plan. One projection is a guess. Three projections across a realistic longevity range is a stress test.

The CalcMoney Retirement Calculator lets you set a custom retirement age, target terminal age, expected return, inflation rate, and annual withdrawal amount. Run it at ages 85, 90, and 95. Note where the portfolio first reaches zero. That age is your current coverage limit. If it falls short of 90, you have a gap to close with a reduced withdrawal, additional savings, delayed Social Security, or a combination of all three.

The numbers will tell you exactly how large the problem is. The math requires no guessing.

Run your longevity stress test now with the CalcMoney Retirement Calculator →

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Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.