You’ll probably live longer than you think

Liz Weston, Associated Press

Women often don’t score as well as men in surveys of financial literacy. One area where we seem to do better is “longevity literacy,” or understanding how long we’re likely to live.

Longevity literacy is essential to smart retirement planning. Overestimate your longevity, and you could retire too late or scrimp too much. Underestimate it and you could run short of money.

In a recent TIAA Institute study, 43% of women correctly estimated the life expectancy of 60-year-old women in the US. (The right answer was 85.) Only 32% of men chose the correct answer for the life expectancy for 60-year-old men, which was 82. Men also were far more likely than women to underestimate life expectancy — and that’s a huge potential problem for both sexes.

A man who expects to die in his 70s might draw too much from retirement funds or start Social Security too early. That could leave him —  and the spouse who may outlive him - with too little income later on.

“A lot of people do OK in their first 10 years or 15 years of retirement,” says actuary Steve Vernon, a former research scholar at the Stanford Center on Longevity. “It’s often in their late 70s and 80s that they started to struggle.”

The life expectancy statistics that often make headlines aren’t the ones that matter for retirement planning, Vernon says. For example, in December the Centers for Disease Control and Prevention noted that US life expectancy dropped for the second year in a row. But the number the CDC cited — 76.4 years — is life expectancy from birth. That figure includes infant mortality as well as the accidents, diseases, overdoses, homicides and suicides that end lives too early.

The thing about longevity is that it’s persistent. The longer you live, the longer you are likely to live. One out of three men and 1 in 2 women in their mid-50s will live to 90, according to the Society of Actuaries. There’s a 50% chance that at least one member of a heterosexual married couple age 65 will be alive at 92. With longer lives comes “longevity risk”: the chance that people will outlive their savings. Understanding and addressing that risk is an important element of retirement planning, but most Americans are falling short, says Surya Kolluri, head of the TIAA Institute, which conducts research on financial security.More than half of Americans don’t understand how long people tend to live in retirement, according to a 2022 survey of more than 3,500 adults nationwide by the TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington University School of Business. The annual survey, known as the Personal Finance Index, has traditionally measured financial literacy. Last year, the researchers added a longevity question with a multiple choice answer. Men were asked “What is life expectancy among 60-year-old men in the US?” while women were asked “What is life expectancy among 60-year-old women in the US?” (The correct answers were determined by Social Security actuarial data from 2019.) Men and women were about equally likely to say they didn’t know the correct answer or choose the answer that overestimated life expectancy by six years. But 31% of men selected the answer that underestimated life expectancy by six years, compared to 19% of women.

Researchers aren’t sure why more women than men demonstrated longevity literacy, Kolluri says. One hypothesis is that women are traditionally more involved in caregiving for older relatives and thus better acquainted with the realities of aging, he says. Another is that women are aware they live longer than men and that wives often outlive their husbands. “I think most women are just more in tune with longevity than men are and maybe are concerned about it,” Vernon says.

Retirees who answered the longevity question correctly were much more likely to report that making ends meet was “very easy” and to be “very confident” they had enough money to last their lifetimes compared to those who lacked longevity literacy, the researchers found.

The single most powerful way to mitigate longevity risk is to delay claiming Social Security, Vernon says. Social Security retirement benefits can start as early as age 62, but applying before your full retirement age — which is currently between 66 and 67 — means your check is permanently reduced. Delaying your application beyond full retirement age can add 8% each year you wait, until your benefit maxes out at age 70.

Delaying is particularly important for the higher earner in a married couple, since it’s the higher earner’s benefit that determines what the survivor gets after the first spouse dies. A 2022 paper for the National Bureau of Economic Research found that virtually all American workers ages 45 to 62 should delay their applications beyond age 65 to maximize their benefits, and that more than 90% should wait until age 70. But currently, only about 10% of applicants wait that long, the researchers found.

“Most people just don’t understand how long they could live in retirement, and they don’t plan for it,” Vernon says.

The Personal Finance Index survey was completed online in January 2022 by a sample of 3,582 US adults, ages 18 and older, including 1,025 who answered that they considered themselves retired. The data were weighted to be nationally representative.