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LIMRA: Longevity Risk Threatens Retirement Dreams

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There is good news and bad news about the way Americans are planning for their retirement years. The good news is they are aware of the importance of creating a lifetime stream of income. The bad news is their awareness falls short when it comes to accurately estimating how long their lifetimes will last.

Let me summarize what LIMRA found when researching this issue. When we asked pre-retirees and retirees to list their most important income priorities for retirement, lifetime income topped the list. So you don’t have to sell them on that–they know it’s the key element for a secure retirement.

Where the disconnect happens is when you ask them how many years they expect to live in retirement. This is a critical issue in developing a financial plan that will ensure lifetime income. If they get it wrong, and underestimate their longevity, they are at risk of setting themselves up for retirement’s worst-case scenario–still alive but with no more checks arriving in the mailbox.

Our research found that large numbers of pre-retirees and retires do underestimate the number of years they will live in retirement. This is most prevalent among pre-retirees, especially those furthest away from retirement. Of those five to 10 years away, 65 percent estimate their longevity window as 20 years or less.

Retirees have a more realistic view of longevity, with a majority estimating they will live 20 years or more. But a significant number, 34 percent of those retired three to five years, also hold to the 20 years or less estimate.

Number One Priority

Fortunately, the people who read this blog do understand the importance of longevity. When advisors were asked to rank four retirement priorities–health care, inflation, longevity and volatility–they chose longevity as number one. When retirees were asked to do the same, they ranked longevity dead last.

So advisors get it. You know longevity is the big destroyer of retirement dreams and, as such, you are the best source to help your clients understand retirement risks in the right order.

We know from research conducted in 2009 that retirees were using their advisors primarily to help them manage assets. Only 34 percent were going to their advisors for help with retirement planning. But that’s changing and advisors are driving the change.

In a recent LIMRA survey, one of the most interesting findings was that six of 10 advisors said they were spending more time on retirement planning than they did two years ago. And they anticipate the need for retirement planning will continue to grow.

Again, advisors get it. And because you do, you are the best defense against the possibility of longevity risk undermining the retirement of your clients.


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