The three main risk categories for a retirement plan are longevity risk, market volatility, and customer withdrawal shocks.
Longevity risk is the ability to survive an accumulation agreement. The financial consequences of people living longer than expected are significant. If everyone in 2050 will live only three years longer than is now expected then additional resources equal to 1-2% of the global GDP will be required annually.
Market volatility is a risk of a low market profitability that can lead to portfolio value decrease and reduction in ability to maintain pensioners’ high standard of living. This risk will be a few times higher if the LIC customers withdraw funds from their own retirement accounts after they have reached the age of 55.
Retirement income planning can solve all three problems. We also need to bear in mind such a product as pure life annuity, but it will be able to adequately reimburse the income if a LIC client has been saving for retirement for more than 30 years.
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