The Fidelity Research Institute has found that pre-retirees significantly underestimate the length of their retirement years and how long their savings will need to last. This miscalculation will become increasingly problematic, the study explains, as the traditional guaranteed income sources of Social Security and defined benefit pensions begin to replace a smaller and smaller share of their pre-retirement income.
Many pre-retirees believe they will need to make their retirement savings last until an average of age 83. However, estimates predict a healthy 65-year-old man has a 24 percent chance of living to at least 90 and healthy women a 35 percent chance of reaching that age. Thus, many pre-retirees appear to be underestimating their life spans and risk outliving their assets.
"Many of today's retirees have the luxury of knowing that even if they overspend in their early retirement years, they still have a broader safety net of guaranteed income sources to help them get through," says Van Harlow, managing director, Fidelity Research Institute. "However, pre-retirees will have a much smaller net to catch them if they make a planning mistake, and even if they accumulate additional savings to compensate, they will still need to determine how best to structure their portfolio to reduce their personal guaranteed income gap."
Janet Levaux is the managing editor of Research; reach her at email@example.com.