I’m often asked: “Is longevity a major consideration in my retirement planning process?”
A little research on my part uncovered the TIAA Institute’s recent study which emphasizes an understanding of longevity is as crucial as financial literacy in order to secure a better financial outcome post retirement. The institute identifies a common pitfall for retirees, the underestimation of their lifespan, as one of the challenges in maintaining a financially secure retirement.
Surya Kolluri, head of the TIAA Institute, highlighted the importance of longevity literacy in preparing for retirement and believes that a realistic grasp of one’s potential lifespan forms an essential part of any plan. Enhancing longevity literacy could help optimize retirement plans and boost individual confidence.
The TIAA report found that retirees with a solid understanding of longevity have an easier time making ends meet than those who do not (40% vs 23%). Furthermore, those with strong longevity knowledge are more likely to meet or exceed their pre-retirement lifestyle expectations (83% vs 63%).
However, over half of the adult American population lacks a basic comprehension of the typical lifespan in retirement. This knowledge gap can obstruct appropriate financial planning, leading to insufficient savings for a comfortable retirement.
The Personal Finance (P-Fin) Index, an annual survey by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at The George Washington University School of Business, disclosed this low “longevity literacy” rate. Their study with over 3,500 participants nationwide found that only 37% knew the correct life expectancy of 60-year-old Americans. A majority (53%) either didn’t know or underestimated their lifespan.
The P-Fin Index research revealed that a mere 40% of working Americans believe their retirement savings are on track. Interestingly, the survey found that 43% of women showed strong longevity literacy as opposed to only 32% of men. This disparity could be due to the traditional roles where men led financial decisions and women health-related ones.
Annamaria Lusardi, University Professor at GW and GFLEC’s Academic Director, stated that educating people on their potential lifespan is a primary step towards better retirement outcomes.
The survey showcased various differences between those with strong and weak longevity literacy. For instance, 81% of literate respondents saved for retirement compared to 57% of those with poor literacy. Moreover, 40% of the literate group found it easy to meet ends and felt confident about their retirement funds, in contrast to 25% in the less literate group.
The TIAA report encourages estimating your life expectancy as a starting point. Tools are available to calculate your expected lifespan based on simple questions. Such tools can also provide estimates for couples, predicting how long at least one partner might live.