It’s well known that the variance of longevity differs across demographic and socioeconomic groups, but the patterns of this variance over time are poorly understood.
Summary
The unpredictability of one’s lifespan makes retirement planning difficult and provides the impetus for insurance products guaranteeing lifetime income. This paper explores trends in the variance of longevity over time across groups, conditional on different starting ages. It also quantifies the magnitude of differences in dollar terms, using a wealth-equivalence approach, for a fair immediate annuity.
Key Insights
- The population-level variance of longevity has generally stayed stable since the 1970s.
- Black and lower-educated individuals tend to face greater lifespan variation compared with their White and higher-educated counterparts in all years.
- Among all the race-education groups explored, variance in longevity has increased, except for low-education Black males.
- Annuitants generally face smaller lifespan dispersion compared with the general population at age 50 in all years.
- The changes in the variance of longevity from 2000 to 2019, keeping life expectancy constant, would be associated with a 1.3% to 2.0% increase in the value of fair immediate annuities, all else held constant, for the population at large.
