Retirement: Longevity Risk

In the TIAA Institute and George Washington University’s Global Financial Literacy Excellence Center (GFLEC) measure of Americans’ financial literacy, nearly two-thirds of U.S. adults were unable to correctly answer the one question that is perhaps the most pertinent when it comes to retirement financial planning: expected life expectancy.

The exact wording of the question depended on whether the respondent was male or female. For males, the question was:

“What is life expectancy among 60-year-old men in the U.S.?” Respondents were given four choices:

  • About 16 more years (age 76)
  • About 22 more years (age 82)
  • About 28 more years (age 88)
  • Don’t know

Female respondents received the identical question, except that it focused on the life expectancy of the average 60-year old woman, and the multiple choices listed different ages.

The correct answer for men is about 22 more years—until the age of 82. For women it is 25 more years, until age 85. Only 37% of all respondents got the question correct.

These results help to explain why relatively few retirees use annuities as part of their retirement planning and financing. If they don’t appreciate the very real risks of outliving their money (longevity risk), then they will tend to under-emphasize the benefits of a guaranteed lifetime income provided by annuities.

It’s worrying that this percentage is so low. As Annamaria Lusardi, a George Washington University professor and GFLEC’s Academic Director, pointed out, “if we want to create better retirement outcomes, we need to start by making sure people understand how long they are going to live in retirement.”


References:

  1. Mark Hulbert, Most People Can’t Answer This One Life-and-Death Question, Barron’s, January 14, 2023.
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