Expectations of long life delay retirement age

There is a major correlation between an individual’s subjective life expectancy and when he expects to retire, according to a study by the Center for Retirement Research at Boston College.

As individuals become more optimistic about living past age 75, they extend their planned retirement dates and increase their expectations about working to the milestone ages of 62, 65 or Social Security’s full retirement age.

The study also examined the relationship between subjective life expectancy and actual retirement behaviors and found that subjective life expectancy impacts the actual retirement behavior to a lesser degree than it impacts retirement expectations.

For the study, researchers asked each respondent their probability of living to ages 75 and 85. Individuals who expect to live longer tend to retire later because they need additional money to fund their retirement. Greater longevity is also associated with better health during one’s working years, making continued work more feasible, the study found.

The Center for Retirement Research compared the relationship between subjective life expectancy and both actual and expected retirement behavior for individuals between the ages of 50 and 61. Actual retirement behavior can deviate from a set plan when unexpected life events occur, like medical problems, the death of a spouse, job loss or the need to care for a loved one.

Retirement expectations better reflect desired labor supply because they are set before these problems occur. The study also examined how the change in subjective life expectancy alters retirement plans and how receiving new information about one’s own mortality induces an individual to reconsider his retirement plan.

The results of the study emphasize the importance of longevity expectations in retirement planning and in making the decision to actually retire. With further health improvements, objective life expectancy continues to increase, but to extend one’s working life, subjective life expectancy needs to increase as well.  Policy reforms aimed at encouraging longer work lives must effectively target communication on the gains in life expectancy, the report concluded.

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