People Underestimate Their Lifespan, Actuary Society Says
Published on September 19, 2012People are living longer than ever before. (photo by Robbert Van Der Steeg used under creative commons license)
Life expectancy has increased dramatically in the last few decades. For the average newborn American male, life expectancy improved from 66.6 years in 1960 to 75.7 years in 2010. For the average newborn American female, life expectancy increased from 73.1 years in 1960 to 80.8 years in 2010.
However, according to a recent survey by the Society of Actuaries, more than half of people over age 45 are underestimating how long they will live, which is causing major problems when planning for retirement. In addition, the survey, “Understanding and Managing the Risks of Retirement,” reported that the majority of people would make significant changes in their savings and lifestyles if they knew they would live five years longer than expected.
Taken from a survey of 800 retirees and 800 pre-retirees, 54% of retirees feel like they will not live as long as the average person of their age and gender, while 31% think they will live longer. Compared to pre-retirees, 46% believe they will not live as long as their peers and 41% felt they will live longer. This is a surprising statistic since underestimating your life, by even five years, can mean huge financial consequences.
“Underestimation of life expectancy, together with having too short a planning horizon, can result in inadequate provisions for retirement needs,” the report concludes.
With this being said the study also found that many participants would alter their lifestyle and save smarter if they knew they would be living longer. “A majority of retirees (64%) and pre-retirees (73%) say they would be very or somewhat likely to make significant reductions in their living expenses if they thought they would live five years longer than they expected. More than half of pre-retirees would also use money they otherwise would have left to heirs (58%) or downsize their housing (55%).”
An interesting forecast was made during the survey, too. “The Society of Actuaries predicts more people will turn to financial advisors for assistance as more rely entirely on defined contribution plans for their retirement. Now only 17% of pre-retirees and 21% of retirees in this survey regularly consult an advisor. Of the survey respondents, only one in eight has savings and investments of $500,000 or more.”
This means that now more than ever, pre-retirees will have to start making smarter choices earlier when it comes to investing for retirement. Whether it’s through traditional or non-traditional means, possibly even a self-directed retirement plan, planning for their futures needs to become of the utmost importance.
To read the Financial Advisor article, click here.Back to Blog