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While no one has a definitive answer to the question “How long will you live?” coming up with an educated, realistic estimate is a good way to build a retirement plan that ensures income security. Unfortunately, most American adults lack what a new study calls “longevity literacy,” a deficit that can be a major pitfall in retirement planning. Here’s what you need to know.
Do you have questions about retirement planning? Talk to a financial advisor today.
How many people lack ‘lifespan literacy’?
Fewer than 40% of adults could correctly estimate how long adults will live on average after age 65, according to new research from the Global Financial Literacy Excellence Center at the George Washington University School of Business and the TIAA Institute. The study’s authors defined the problem as “low life expectancy literacy” and found a correlation between life expectancy literacy and overall retirement readiness.
“Longevive literacy is particularly important because retirement income security inherently involves planning, saving and preparing for a period of time whose length is uncertain,” Surya Kolluri, president of the TIAA Institute, said in a statement. “Our research clearly shows a lack of longevity literacy among the vast majority of American adults.”
How far off most people are
The survey results reflect responses to three multiple-choice questions, with only 12% of adults answering all three questions correctly and 31% of adults responding with ‘don’t know’ or a life expectancy that was too low for each question.
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How long does a 65 year old live on average? 65% of respondents (18 years and older) did not understand the answer well. For men this is 84 years, for women 87 years.
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What is the probability that someone aged 65 or older will live to be at least 90 years old? 68% of respondents answered incorrectly. The answer is 30% for men, 40% for women.
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What is the probability that a 65-year-old will not live past 70? 54% of respondents did not know the answer. For men this is 5%-10%, for women this is less than 5%.
Demographic differences in literacy across lifespan
The study found that lifespan literacy varied by gender, race and generation. For example, women fared better than men. “Women answered a greater number of lifespan literacy questions correctly, while men answered a greater number of questions with a ‘don’t know’ response or an answer in the wrong direction of the retirement planning horizon — 32% of men show poor lifespan literacy, compared to 29% of women,” the report said.
Whites and Asians had higher life expectancies than blacks and Latinos. The latter two groups “have essentially equal levels of life expectancy, but it tends to be significantly lower than that of Asians and whites,” the report said. “Less than 10% of blacks and Latinos show strong life expectancy. About 40% of each have weak life expectancy, and a quarter of each answered ‘don’t know’ to every question.”
The study revealed generational differences, including that 37% of Gen Z has a poor life expectancy compared to 34% of Gen Y (millennials), 30% of Gen X; and 28% of baby boomers. The study also found that strong life expectancy was found in 10% of Gen Z, 12% of Gen Y, 11% of Gen X, and 13% of baby boomers.
Longevity literacy can lead to retirement income security
Of those with a good life expectancy, 72% were saving regularly for their retirement and half had calculated how much money they needed to save for their retirement. Furthermore, 69% were very or somewhat confident that they would have enough money to live comfortably in retirement.
Once retired, the study found that people with strong awareness of longevity issues fared better overall. A whopping 77% of people with strong longevity literacy were more likely to say their retirement lifestyle was as good or better than they had expected before retirement, while 62% of people with low longevity literacy said they were doing as well.
Respondents with lower life expectancy scores scored worse on all questions, including self-esteem questions. A major problem the researchers identified was that those respondents did not understand the term “life expectancy” and how it affects retirement planning and investing. The survey authors recommended that financial planners and others explain this terminology to ensure that people understand the implications of a longer lifespan during retirement.
These results all point to what financial planners call “longevity risk” in retirement, which is the likelihood that a retiree will run out of money during retirement.
Consider speaking with a financial advisor to develop a retirement strategy that fits your goals and circumstances.
Conclusion
Strong life expectancy literacy, knowing how long you are likely to live and how long a spouse might outlive you, is an important factor in planning your retirement investments and lifestyle. People who understand these issues better tend to feel better prepared for retirement and enjoy their retirement lifestyle. In contrast, not understanding life expectancy literacy can be a major pitfall to the security of your retirement income.
Tips for retirement planning
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A financial advisor can help you create a retirement income plan for the future. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can schedule a free introductory meeting with your advisors to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Use SmartAsset’s pension calculator to see how your pension savings have fared so far.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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The post How Long Will You Live? Most People Don’t Consider This Retirement Data appeared first on SmartReads by SmartAsset.
