Many workers underestimate how long they are likely to live in retirement, leading to under-preparation, according to a report released Tuesday by TIAA Retirement Institute and the Global Financial Literacy Excellence Center, part of the Stanford Initiative for Financial Decision-Making.
The report examines workers' longevity and retirement expectations, how they are determined and how they influence decision-making. Financial advisors can use the findings to help clients achieve retirement income security.
The report is based on data from a survey that TIAA Institute-GFLEC conducted in January 2024 among 3,876 U.S. adults.
It found that longevity literacy tends to be poor among American adults. Only 32% correctly answered a multiple-choice question asking the life expectancy of 65-year-old men and women (84 and 87), while 35% underestimated it and 24% said they did not know.
Individuals’ perceptions of how long retirees live in general strongly influence their expectations about how long they will live in retirement, according to the survey. Seventy percent of those who overestimated life expectancy for 65-year-olds said they anticipated living to at least age 90, while 74% of those who underestimated it did not expect to live to age 90.
“For so many people, understanding how long they can potentially live during retirement is among the biggest barriers to attaining retirement security,” Kourtney Gibson, chief executive of retirement solutions at TIAA, said in a statement.
Workers’ expected years in retirement are largely driven by their expected lifespans, according to the report. In general, expected length of retirement increases by 11 months with a one-year increase in expected lifespan. Those who expect to live longer may think they will work longer, the report said, whereas expected retirement ages actually vary little with expected lifespans.
This is noteworthy, the report said, because retiring at an older age can promote retirement readiness in multiple ways — additional time to save and grow existing savings, greater Social Security benefit payments and less retirement spending in total because fewer years are spent in retirement.
Workers who expect relatively short lifespans because of their ignorance about general life expectancy are at risk of accumulating inadequate financial resources for retirement. Not only is their retirement planning horizon too short, but they also appear less likely to plan and save for retirement.
The report noted, for example, that about half of workers who expect to live fewer than 10 years in retirement are saving on a regular basis, compared with more than 70% of those who anticipate a retirement of at least 20 years. And 23% of those who anticipate retirement of at least 30 years are likely to annuitize some retirement savings, compared with 13% of those expecting a retirement of fewer than 10 years.
“The gap between Americans’ poor longevity literacy and their retirement preparedness demands urgent attention,” Surya Kolluri, head of TIAA Institute, said in a statement. “Providing financial education and planning, alongside access to lifetime income solutions is essential to helping people create the secure financial futures they deserve.”
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