(The Hill) – A significant share of older Americans underestimate how long their retirement is going to last: i.e., how long they are going to live.
Most people know that the average American lives to an age between 75 and 80. Less well-known, apparently, is that life expectancy rises with age. At age 60, an American man can expect to reach 82; a woman, 85.
That knowledge is called longevity literacy, and many of us don’t have it. In a 2022 survey by the insurer TIAA, one-quarter of Americans underestimated the life expectancy of a 60-year-old. Another 28 percent said they didn’t know it.
Even among baby boomers, the youngest of whom are nearing 60, more than two-fifths of survey respondents either guessed low on longevity or punted on the question.
“We were kind of shocked to get the data,” said Surya Kolluri, the head of TIAA Institute, which produced the report.
Kolluri said he was particularly dismayed over the large share of respondents who could not answer the longevity question, which was multiple choice.
“We gave them the answer and they still said, ‘Eh, I don’t know,’” he said.
Confusion over the human lifespan complicates the business of planning for retirement, a phase of life for which many Americans are already underprepared.
More than two-fifths of baby boomers have no retirement savings, even as the postwar generation enters retirement years, census data show.
The median boomer household held $134,000 in retirement savings in 2019, according to a NerdWallet analysis.
By most accounts, even that figure is not nearly enough. Human longevity doesn’t stop rising at 60. An American who retires at 65 can expect to live to 85, according to Social Security projections.
“We don’t know why people are so off in their expectations,” said Gal Wettstein, a senior research economist at Boston College. “I think there is some evidence that people don’t account for the fact that they’ve already lived to a certain age when they try to guess how long they might live.”
The biggest financial risk facing retirees is “outliving your savings,” Wettstein said, citing research from the school’s Center for Retirement Research.
That fact, too, is lost on many Americans. People approaching retirement wrongly assume that stock market volatility is their biggest financial peril, Wettstein said. In fact, the far greater risk is “living so long that your money runs out.”
Increasing lifespans ranks as one of the great human advances of the past century. An American born in 1900 could expect to reach 47. By 1950, life expectancy had risen to 68. U.S. lifespan peaked at 79 in 2019, then dropped during the COVID-19 pandemic.
The longevity bonus has become more pronounced over time, as we outlive various perils that killed our forebears. A Stanford researcher examined people who live past 65 in developed countries and found that human lifespans increase by three years with every generation.
But such nuances are lost on many people outside the scholarly community.
Researchers at the Employee Benefit Research Institute have repeatedly surveyed Americans of all ages about longevity and found consistent befuddlement.
“One of the consistent things is that there were 20 percent of people who don’t know, who couldn’t give an answer,” said Craig Copeland, director of wealth benefits research at the institute. “So, you’re starting out with one-fifth of people with no idea of how long they were going to live.”
Retirees fared somewhat better on survey questions about longevity. In 2022, Copeland said, more than half of retired persons demonstrated knowledge that an American at 65 can expect to live 20 more years. Even in this group, however, one-fifth of respondents didn’t answer the question.
Boston College researchers have found that many working-age Americans are “pessimistic about how long they are going to live,” and underestimate their own expected longevity, Wettstein said.
Even people in their 50s and 60s “tend to think they’re not going to live very long, or not as long as the life expectancy of a person their age,” he said. “Where that kind of flips is in people’s 70s, which is late for making decisions about retirement.”
Women show much greater longevity literacy than men. In the TIAA survey, 43 percent of women answered the lifespan question correctly, compared to 32 percent of men.
“That concerns me,” Kolluri said of the male respondents, “because what it implies to me is that they’re incurring longevity risk, that they will outlive their money.”
People with greater literacy about human lifespans are more likely to save for retirement, Kolluri said. They are also more likely to have calculated how much money they will need. And they are more likely to be satisfied in retirement.
Lack of longevity literacy leaves many Americans unprepared to finance retirement. There are other factors.
Millions of Americans count on Social Security to see them through retirement. But monthly Social Security checks to retired workers average around $1,800, much less than the typical family spends in retirement.
Prior generations of retirees tapped employer-funded pensions. That income source has gradually given way to employer-sponsored retirement plans.
Yet, according to an AARP analysis, nearly half of Americans have no access to retirement plans at work, especially at smaller firms with fewer employees.
Workers who do save for retirement often don’t save enough. In the latest Retirement Confidence Survey from the Employee Benefit Research Institute, only 64 percent of workers voiced confidence that they would have enough money to live comfortably through their retirement years.
Another measure, Boston College’s National Retirement Risk Index, finds that roughly half of working-age American households are at risk of being financially unprepared for retirement.
Just as worrisome, perhaps, only about one-third of households are aware that they are unprepared.
Many families overestimate how much money they have on hand for retirement and underestimate how much more they will need. Homeowners often focus too much on the rising value of their home, and too little on how much they owe on the mortgage. Workers with retirement accounts may underestimate how far those funds will go. A $100,000 retirement nest egg translates to only about $600 in monthly retirement income. Too often, researchers say, a household has two wage earners but only one partner actively saving for retirement.
Outliving one’s retirement savings is only the largest among several risks Americans face when entering retirement. Another is covering the costs of long-term care.
More than half of Americans entering retirement today will eventually require “long-term services and supports,” at an average cost of $120,900, according to federal research.
“A semi-private room in a nursing home is about $100,000 a year, and that is a lot of money,” Wettstein said. “No doubt, for a lot of people, that would run through their savings very quickly.”
A recent analysis by the National Council on Aging found that 80 percent of people over 60 lack the financial resources to cover long-term care.
“You have this idea that Medicare will cover some of those costs, whereas in fact Medicare doesn’t generally cover most of those costs,” said Genevieve Waterman, director of economic and financial security at the National Council on Aging.
Worried about financing retirement? The National Council on Aging offers an Age Well Planner, and many investment sites feature retirement income calculators.