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June 27, 2011 at 10:22 AM
A new academic study on the effect of increased lifespans on savings rates confirms old suspicions and raises some interesting new questions.
The conclusions reached by Optimal Retirement and Saving with Increasing Longevity, by David E. Bloom, David Canning, and Michael Moore are simple enough but need some unpacking: “[A] higher level of wages leads to earlier retirement and increasing savings rates. On the other hand an increase in life expectancy leads to an increase [in] the retirement age, but less than proportionately, while reducing savings rates.”
The Effect of Wages on Retirement Age
First, the idea that a higher level of wages leads to earlier retirement and increased savings is not entirely unexpected. People with more resources are more likely to have greater disposable income. And although it’s not always the case, higher-income individuals tend to receive a better financial education and are more keenly aware of the need to save for the future.
This result emphasizes the importance of planning for middle-income families. Without a solid plan, many will be stuck working many more years than they hoped or planned. The difficulty for these underserved families is that advice from financial professionals is often outside their means. And without advice, retirement is often a secondary concern that’s left to fate.
The Effect of Life Expectancy on Savings Rates
The study’s second conclusion is less intuitive. It found that an increase in life expectancy tends
