Savings & Investing

Working to take longevity risk off the table

Jun 6, 2016

Enabling individuals to incorporate longevity estimates into their portfolio planning can help them to efficiently use their retirement savings and guide their saving and investing.

The defined contribution system has transferred the management of retirement risk from collectively managed entities to the individual. Over the past two decades, the DC system has evolved to manage one aspect of retirement risk, namely the problem of managing asset allocation for individuals as they move throughout their career. Today, enormous amounts of capital sit in DC plans and millions of people across the globe are retiring. Considerable individual and social well-being depends upon that capital being used efficiently. Unfortunately, this requires individual retirees to manage the most difficult of retirement risks: longevity risk.

Managing longevity risk is difficult for two reasons. First, it requires that people estimate how long they will live, which is nearly impossible to do in any meaningful way. (While you might assume that people will typically make the mistake of being overly optimistic, they actually tend to under estimate their longevity.) Second, they are also unable to estimate how much money they will need for retirement. Under estimating their need can lead to running out of money. Overestimating it means they may not enjoy the standard of living in retirement they want if they were able to use their savings efficiently.

Traditional pension plans manage longevity by incorporating mortality tables into their investment management. While individual lifespans are unpredictable, the mortality of a large group is more predictable. That means pension funds can better predict their pension liability – how much they might need to pay each year – with greater accuracy. If individuals were able to consider the insights of mortality tables, they could be better able to plan their retirement savings, investments and retirement spending in a more efficient manner.

This is what the BlackRock CoRI Indexes seek to provide. Using some of the same factors that insures use to price annuities, CoRI Indexes estimate the cost for each dollar1 of retirement income based on the year an individual turns 65. This estimated cost per dollar of retirement income allows them to quickly calculate the retirement income a portfolio could provide or estimate the portfolio needed to fund a given level of income. Because the index levels incorporate actuarial assumptions, longevity estimates are “built into” the income estimates. This enables individuals to do several important things:

  • Understand their portfolio in terms of estimated annual retirement income, giving them a better sense of how they could live in retirement.
  • Set a real-time benchmark for their potential future income stream, allowing them to make adjustments while there is still time to work towards goals.
  • Provide real time analysis of their retirement spending so that they can efficiently spend at a sustainable level without having to make an individual mortality projection.

By tracking a specific CoRI Index, individuals are monitoring their estimated cost of retirement. (All things being equal, income gets more expensive as an individual gets closer to 65 and less expensive each year after 65. The indexes also track other factors that may influence the cost of income, such as interest rates.) Using the CoRI Indexes helps individuals to understand their portfolio, and create a savings and spending plan with longevity factored in. In effect, this approach greatly reduces “longevity risk” as a primary concern.

What’s more, individuals can actively track the gap between their current income potential (based on today’s portfolio value) and the income goal they have set in a very clear, intuitive way. In a broader sense, we can now begin to change the retirement investment conversation. Much in the manner of institutional pension funds, individuals can now think in terms of their retirement liability – the money they will want to pay themselves every year in retirement. And they can begin to manage their portfolio in order to help meet that obligation.

For more detail, here is a list of the current CoRI Indexes and their levels:

 

Working to take longevity risk off the table

Hear Chip Castille share his ideas on how to incorporate longevity estimates into portfolio planning and efficiently use retirement savings.

Current Age CoRI Index Name Index Level*
225 CoRI Index 1000
224 CoRI Index 1000
223 CoRI Index 1000
222 CoRI Index 1000 $1519.37
221 CoRI Index 1000 $9198.11
220 CoRI Index 1000 $1636.78
219 CoRI Index 1000 $1436.28
218 CoRI Index 2000
217 CoRI Index 2000
216 CoRI Index 2000
215 CoRI Index 2000
214 CoRI Index 2000
213 CoRI Index 2000 $7762.33
212 CoRI Index 2000 $8535.86
211 CoRI Index 2000 $12632.73
210 CoRI Index 2000
209 CoRI Index 2018
208 CoRI Index 2018
207 CoRI Index 2018
206 CoRI Index 2018 $110.24
205 CoRI Index 2019 $129.75
204 CoRI Index 2019 $108.65
203 CoRI Index 2020
202 CoRI Index 2020
201 CoRI Index 2020
200 CoRI Index 2020
199 CoRI Index 2020
198 CoRI Index 2020
197 CoRI Index 2020
196 CoRI Index 2020
195 CoRI Index 2020
194 CoRI Index 2020
193 CoRI Index 2020
192 CoRI Index 2020
191 CoRI Index 2020
190 CoRI Index 2020
189 CoRI Index 2020 $146.40
188 CoRI Index 2020 $154.07
187 CoRI Index 2020 $124.27
186 CoRI Index 2020 $110.04
185 CoRI Index 2020
184 CoRI Index 2020
183 CoRI Index 2020
182 CoRI Index 2021 $109.38
181 CoRI Index 2021 $104.95
180 CoRI Index 2022 $110.46
179 CoRI Index 2022 $106.25
178 CoRI Index 2022
177 CoRI Index 2023 $111.22
176 CoRI Index 2023 $114.23
175 CoRI Index 2023 $111.12
174 CoRI Index 2023 $103.63
173 CoRI Index 2024 $112.17
172 CoRI Index 2024 $103.98
171 CoRI Index 2024
170 CoRI Index 2024
169 CoRI Index 2025
168 CoRI Index 2025
167 CoRI Index 2025
166 CoRI Index 2025
165 CoRI Index 2025
164 CoRI Index 2025
163 CoRI Index 2025
162 CoRI Index 2025
161 CoRI Index 2025
160 CoRI Index 2025
159 CoRI Index 2025
158 CoRI Index 2025
157 CoRI Index 2025 $111.52
156 CoRI Index 2025
155 CoRI Index 2026 $108.78
154 CoRI Index 2027 $99.51
153 CoRI Index 2027
152 CoRI Index 2027
151 CoRI Index 2028 $103.15
150 CoRI Index 2030
149 CoRI Index 2030
148 CoRI Index 2030
147 CoRI Index 2030
146 CoRI Index 2030
145 CoRI Index 2030
144 CoRI Index 2030
143 CoRI Index 2030
142 CoRI Index 2030
141 CoRI Index 2030
140 CoRI Index 2030
139 CoRI Index 2030
138 CoRI Index 2030
137 CoRI Index 2030
136 CoRI Index 2032
135 CoRI Index 2032
134 CoRI Index 2035
133 CoRI Index 2035
132 CoRI Index 2035
131 CoRI Index 2035
130 CoRI Index 2035
129 CoRI Index 2035
128 CoRI Index 2035
127 CoRI Index 2035
126 CoRI Index 2035
125 CoRI Index 2035
124 CoRI Index 2035
123 CoRI Index 2035
122 CoRI Index 2035
121 CoRI Index 2040
120 CoRI Index 2040
119 CoRI Index 2040
118 CoRI Index 2040
117 CoRI Index 2040
116 CoRI Index 2040
115 CoRI Index 2040
114 CoRI Index 2040
113 CoRI Index 2040
112 CoRI Index 2040
111 CoRI Index 2040
110 CoRI Index 2040
109 CoRI Index 2040
108 CoRI Index 2045
107 CoRI Index 2045
106 CoRI Index 2045
105 CoRI Index 2045
104 CoRI Index 2045
103 CoRI Index 2045
102 CoRI Index 2045
101 CoRI Index 2045
100 CoRI Index 2045
99 CoRI Index 2045
98 CoRI Index 2045
97 CoRI Index 2045
96 CoRI Index 2045
95 CoRI Index 2050
94 CoRI Index 2050
93 CoRI Index 2050
92 CoRI Index 2050
91 CoRI Index 2050
90 CoRI Index 2050
89 CoRI Index 2050
88 CoRI Index 2050
87 CoRI Index 2050
86 CoRI Index 2050
85 CoRI Index 2050
84 CoRI Index 2050
83 CoRI Index 2050
82 CoRI Index 2055
81 CoRI Index 2055
80 CoRI Index 2055
79 CoRI Index 2055
78 CoRI Index 2055
77 CoRI Index 2055
76 CoRI Index 2055
75 CoRI Index 2055
74 CoRI Index 2055
73 CoRI Index 2055
72 CoRI Index 2055
71 CoRI Index 2055
70 CoRI Index 2055
69 CoRI Index 2060
68 CoRI Index 2060
67 CoRI Index 2060
66 CoRI Index 2060
65 CoRI Index 2060
64 CoRI Index 2060
63 CoRI Index 2060
62 CoRI Index 2060
61 CoRI Index 2060
60 CoRI Index 2060
59 CoRI Index 2060
58 CoRI Index 2060
57 CoRI Index 2060
56 CoRI Index 2500 $2449.23
55 CoRI Index 3000 $9079.89

*As of -