Life expectancy continues to rise every year, and with it concerns about how people will manage their retirement.
In its Sixth Biennial Survey of post-retirement risk, the Society of Actuaries looked at the major events and trends that have occurred since 2001 that have affected the retirement process.
In its survey, the Society found that more than half of respondents underestimated population longevity. Four in 10 respondents underestimated the number by five or more years. Another two in 10 underestimated it by two to four years. Only two in 10 provided the correct estimate.
According to the report, underestimation of life expectancy, together with having too short a planning horizon can result in inadequate provision for retirement needs. Even when individuals do have a reasonable estimate of their life expectancy, too few of them provide adequately for the consequences of outliving the average life expectancy.
Forty-two percent of retirees and 41 percent of pre-retirees correctly responded that about half of 65-year-old men and women can expect to live until median life expectancy. Twenty-one percent of retirees and 20 percent of pre-retirees think that far fewer than half of 65-year-olds will live at least until that age, while about one-third believe about 75 percent or more will live until then.
The results weren’t much different from past reports, leading the authors to infer that the general public’s understanding of longevity and what it means for financial planning should be a high priority for all those committed to ensuring a secure retirement for American seniors.
Most of the people interviewed believed they would live until 84 or 85, and 24 percent of retirees and 28 percent of pre-retirees believed they would live until age 90 or later. One in ten retirees and pre-retirees felt they would not reach age 75.
Underestimation of life expectancy can drain resources, the report said. It encouraged individuals who are attempting to manage assets to last the rest of their life to consider buying life annuities to reduce the risk of outliving financial resources.
Most respondents mentioned family history as their main reason for their life expectancy estimates. Research has shown that genetics do play a role in longevity, but lifestyle and diet also can play an important role.
A recent Society of Actuaries study found that between 1993 and 2001, improved longevity for those with at least a college degree was about double that for the population as a whole.
Retirees and pre-retirees don’t look long enough into the future to plan for retirement. In 2009, retirees said they typically look five years into the future, while pre-retirees look 10 years ahead when making important financial decisions.
The report also found that 57 percent of retirees said they had a plan for how much money they would spend each year in retirement and where that money would come from. In contrast, only 35 percent said they had such a plan.