Retirees Underestimate Life Expectancy, Risk Underfunding Retirement
For Immediate Release
Kim McKeown, Public Relations Manager
Ellyn Michalak, Burson-Marsteller
Society of Actuaries' report shows increasing longevity as a major retirement planning risk
Four in 10 retirees and pre-retirees underestimate their longevity by five or more years
Schaumburg, Ill. (July 30, 2012) – With life expectancy rates on the rise, more than half of retirees and pre-retirees underestimate the age to which a person of his or her age and gender can expect to live, which can have significant implications on retirement planning, according to a new report from the Society of Actuaries (SOA).
This SOA highlights report released today illustrates findings on longevity from the “2011 Risks and Process of Retirement Survey Report,” such as approximately four in 10 underestimate their life expectancy by five or more years.
“Underestimation of life expectancy, combined with having too short of a planning horizon can result in inadequate funds for retirement needs,” said actuary and retirement expert Cindy Levering, ASA, MAAA, EA. “There is a general misunderstanding of what ‘average life expectancy’ means, and when people are told they will live to an age such as 80 or 85, they don’t realize that this means there is a 50 percent chance that they could live past that age.”
Life spans continue to increase, according to the SOA report. In the past half-century, life expectancy for newborn American males improved by an average of almost two years each decade, from 66.6 years in 1960 to 75.7 years by 2010. For females, the average increase was about 1.5 years per decade, from 73.1 years in 1960 to 80.8 years by 2010.
The SOA figures show that males have a 40 percent chance and females have more than a 50 percent chance of living to age 85 (if they reach age 65 and are in average health).
“Underestimation of life expectancy increases the chances that retirees and pre-retirees will exhaust all resources other than Social Security, while it may also discourage using life annuities,” Levering said. “While purchasing life annuities is not an absolute guarantee, it is one strategy to reduce the risk of outliving financial resources.”
Although the majority of retirees and pre-retirees believe they will live into their 80s, a comparison of respondents’ estimates of their own life expectancy and the life expectancy of the overall population shows:
- 54 percent of retirees do not believe they will live as long as the average person their age and sex.
- 31 percent of retirees cite a life expectancy that is longer than the population average.
- 46 percent of pre-retirees think they will live below the population average, while
- 41 percent of pre-retirees believe they will live longer than an average person of their age and sex.
Despite the misconception surrounding personal life expectancy, most retirees (64 percent) and pre-retirees (72 percent) say they would be very or somewhat likely to reduce their expenditures significantly if they were to live five years longer than expected.
Retirees say they typically look five years (median) into the future, while pre-retirees typically look 10 years (median) ahead when making important financial decisions.
For a full copy of the SOA's longevity report, please click here.
For a full copy of the "2011 Risks and Process of Retirement Survey Report," click here.
About the Study
"The 2011 Risks and Process of Retirement Survey" was conducted on the SOA's behalf by Mathew Greenwald and Associates, Inc., and the Employee Benefit Research Institute (EBRI) through telephone interviews of 1,600 adults ages 45 to 80 (800 retirees; 800 pre-retirees–twice the sample number of prior surveys) in July 2011, before the most recent stock market volatility, U.S. debt downgrade and numerous federal interest rate announcements. Households were selected for participation from a nationwide targeted list sample. The margin of error for study results, at the 95 percent confidence level, is ± 4 percentage points for questions asked of all retirees or all pre-retirees.
This is the sixth biennial survey of post-retirement risks sponsored by the Society of Actuaries. Since the first survey in 2001, major events have transpired and trends have developed that have profoundly affected the retirement process, making the surveys and the responses to them more important in providing insight to retirement system stakeholders.
About the Society of Actuaries
The Society of Actuaries is an educational, research and professional organization dedicated to serving the public, its members and its candidates. The SOA's mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal problems. The SOA's vision is for actuaries to be the leading professionals in the measurement and management of risk.