Most Americans are clueless about a key metric needed to adequately plan for retirement: how long they are likely to live.
Just over a third (35%) of Americans knew the average lifespan of retirees, according to a report out this week from the TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington University School of Business. And only 12% knew the right responses to a basic quiz designed to gauge longevity literacy.
These were: The average number of years individuals live upon reaching age 65, the likelihood among 65-year-olds of living to at least age 90, and the likelihood among 65-year-olds of not living beyond age 70.
Understanding average life expectancy can help you have a ballpark concept of what could be in the cards, and that’s huge when it comes to putting together a retirement plan to have enough funds to live comfortably in what could be three decades after you step out of the workforce.
"Our research shows us that we need to reframe how we plan for retirement," Surya Kolluri, head of the TIAA Institute, told Yahoo Finance. "Rather than saying, ‘hey, what is my target of savings when I get to retirement, the real question is how should I plan for this income to last the rest of my life? And what does my lifespan look like?"
Knowing the answers to the questions matters. People with strong levels of longevity literacy — both retirees and those still working — are far more prepared for retirement, according to the data, which is based on a survey completed online in January by 3,503 US adults, ages 18 and older.
Roughly seven in 10 workers who have strong longevity literacy are confident about having enough money to live comfortably throughout retirement, compared with about five in 10 of those with weak literacy, according to the study.
And half have determined how much they need to save for retirement, compared with a third of those with weak longevity literacy. Of note, 72% of those with high longevity literacy are saving for retirement on a regular basis, compared with 58% of those with weak longevity literacy, the researchers found.
"If people have a sense for how long they're going to live, their mindset and their behavior changes," Kolluri said.
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Retirees with longevity acumen are also ahead of the game.
The study found 77% of retirees who scored high on the longevity literacy test say their current lifestyle meets or exceeds their pre-retirement expectations, compared with 62% of those with weak literacy. And 82% say they’re confident they have enough money to live comfortably throughout their retirement, compared with 69% of those with weak literacy.
"Retirement is kind of an old term," Kolluri said. "You have got to take longevity into account in how you want to live your life, do you want to continue work in some way, where you want to live, and what kind of activities you want to pursue. Money is the underlying facilitator for the life we want to live across a variety of dimensions."
What the wrong answers mean
"Those who could not answer the questions correctly are working basically with not enough information, not enough knowledge to plan for that uncertain time period after reaching retirement age," Andrea Sticha, the lead researcher with the Global Financial Literacy Excellence Center, told Yahoo Finance.
And women tend to get this concept better than their male counterparts. "What we see in terms of the gender gap is that men are more likely to show weak longevity literacy than women," she added.
Still, findings from the research report, "Longevity as Opportunity – New Conversations on Work, Finances, and Well-Being" from Transamerica and the Massachusetts Institute of Technology AgeLab, reveals how planning for longevity can create a bleak "I’ll never be able to retire" attitude.
A third of folks reported that they did not expect to be able to retire, and were prepared to continue working in later life. Three-quarters, however, of those aged 40 to 59 said it is very or extremely important for them to save enough money to be able to stop working eventually. And two-thirds of people still working in their 60s and 70s said retirement was very or extremely important.
"Understanding longevity is vital in retirement planning as it guides the length of time for which you should prepare financially," Phil Eckman, president of workplace solutions at Transamerica, told Yahoo Finance.
"The longer you live, the more years your retirement funds need to cover. This understanding can lead to more complex financial planning, which includes strategies such as delaying retirement, saving more, investing wisely, and possibly working part-time during retirement. It also necessitates considering healthcare costs that will likely increase as you age."
The research is based on 10 focus groups with a total of 69 people conducted in September 2022 and a national US survey conducted in December 2022 of 1,184 people.
'Beyond pickleball and beach walks’
"Increased longevity changes everything," Joseph Coughlin, director of the AgeLab at MIT, told Yahoo Finance. "It is not just about more time, it adds more complexity."
For instance, nearly one-third of adult life is those retirement years, Coughlin said, noting that the 8,000 days of life between 65 and just past 85 is the same amount as between college graduation and midlife crisis.
"Think about all the things and changes we fit into that time," he said.
But if you live past 85, those retirement years after 65 may be 9,000 to 10,000 or more days
"We will have to be prepared for a far longer period of adult life that goes well beyond pickleball and beach walks. That could mean working or volunteering, actively finding ways to make new social connections as our friends fade or pass away, moving many times because of our health or family," he added.
"Longevity demands that every age group consciously anticipate what’s next, prepare, and ultimately celebrate each life stage as it comes — and each stage may now be longer and more complex than ever before."
Tweaking your retirement plan
The prospect of a long life is, in fact, a financial planning conundrum.
"When people think about retirement, it’s often hard to balance the worry of retiring too soon and running out of money, and the fear of working longer than necessary and limiting time to enjoy life after a career," Jaime Eckels, a certified financial planner at Plante Moran Financial Advisors in Auburn Hills, Mich., told Yahoo Finance.
"As a financial adviser, I work with clients to find the retirement spending impact of retiring at different ages by running a projection that encompasses assets, savings, retirement income sources, investment returns, inflation, both short- and long-term goals, and a projected lifespan of 95 years."
Clients are often surprised by a 95-year life expectancy, especially if their parents didn’t live that long, she added.
"But the truth is, we don’t know how long we are going to live," she said, "so we assume longer to help ensure their assets can support them past the average life span."
For those of you checking to see if you have a good grasp on longevity, take the expanded six-question quiz here from the TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington University School of Business.
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on Twitter @kerryhannon.
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