Research conducted by the Stanford Center on Longevity (SCL) raises a crucial concern about the failure to correctly estimate the number of years the average American will spend in retirement.
As the SCL explains, underestimating longevity not only impacts workers planning their own retirement but also impacts how the government calculates life expectancy in relation to federal retirement benefits and the costs for programs like Social Security and Medicare.
The Risk: Outliving Your Money
There’s a big difference in the amount of retirement income it will take to live comfortably during a 20-year retirement compared to a retirement that may end up five or 10 years longer than you’ve planned. Underestimating your life expectancy may lead to outliving your money.
That’s why longevity is considered a bigger risk to your retirement than inflation or a stock market turndown. However, according to the SCL, “… forecasters, regardless of the techniques they use, have consistently underestimated how long people will live.”
Add to this, individuals have a skewed perception of their potential longevity:
- 2 in 3 pre-retiree men underestimate the life expectancy of the average 65-year-old man. Of that group, 42% underestimate average life expectancy by 5 years or more.
- Roughly half of pre-retiree females underestimate the life expectancy of the average 65-year-old woman.
“In the United States, as many as half of today’s 5-year-olds can expect to live to the age of 100, and this once unattainable milestone may become the norm for newborns by 2050.”
The Stanford Center on Longevity
The Pitfall: Failure To Adequately Plan
In addition to underestimating life expectancy, an alarming number of Americans approaching their retirement have yet to develop a financial plan:
One-third of pre-retirees say they have a retirement plan, as well as just 57% of retirees.
- A typical retiree reports a financial planning horizon of just five years (median), and a general planning horizon of ten years (median).
- 2 in 10 pre-retirees say they look 20 or more years into the future when making important financial decisions.
Longevity In The Future
The SCL reveals a surprising projection on life expectancy in the future:
“In the United States, as many as half of today’s 5-year-olds can expect to live to the age of 100, and this once unattainable milestone may become the norm for newborns by 2050.”
The Stanford Center on Longevity
Think about it — if you live well into your 80s or 90s, will you have enough income and savings to cover all of your expenses plus your needs related to aging?
Consider working with an FRC® trained advisor who understands your federal benefits and can help you develop a retirement plan that provides financial security for a very long life.
Source: https://longevity.stanford.edu/
