Definition
Cost view is the Longevity Standard analytical frame that fixes a target level of lifetime annual income and compares the capital required to produce it across different arrangements.
Why it matters
If you know what income you need in retirement, the relevant question is what that income costs — not what your balance happens to produce. Cost view is the frame that asks the need-anchored question.
How it works
Cost view holds the income target constant and lets the required capital vary across arrangements. For a given income target — for example, $50,000 per year of lifetime income beginning at age 67 — the capital required to produce that target differs across self-managed drawdown, a SPIA, a deferred income annuity purchased at an earlier age, a direct pool, and other arrangements. Cost view arranges these arrangements on a common axis, with each arrangement's required capital expressed as a cost-of-income figure against the frictionless benchmark.
In practice
When you have worked out what your essential retirement expenses are — what has to be covered regardless of markets — cost view is the frame that lets you ask what the income you need costs to lock in. A professional can run your income target through several arrangements and show you each one's cost side by side, against the frictionless benchmark, so that the comparison is apples to apples. Plan fiduciaries apply the same frame at plan level: given the income need typical for the participant population, which arrangement produces it at the lowest capital cost against the benchmark. The answer is not always the same as the one income view produces, which is why both frames are maintained.
In the Longevity Standard Framework
Cost view is one of two complementary analytical frames in the Longevity Standard framework, paired with income view. Both frames operate on the cost-of-income unit and use the frictionless pool as the benchmark and solo drawdown as the baseline. In cost view, realized value is expressed as the ratio of the arrangement's required capital to the capital required under the frictionless pool, for the fixed income target. Cost view is typically the more useful frame when there is a defined income need to be funded.
Related terms
- Cost of income
- Income view
- Frictionless pool
- Realized value
- Replacement rate
- Income floor
- Safe withdrawal rate
- Actuarial present value