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Lack of ‘Longevity Literacy’ May Pose Retirement Planning Challenges

Practice Management

When asked how long people typically live in retirement, more than half of adult Americans were unable to answer the question correctly — a crucial knowledge gap that could interfere with saving enough to last through retirement. 

That finding comes from an annual survey — the Personal Finance (P-Fin) Index — of more than 3,500 people nationwide by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University (GWU) School of Business. The researchers note that this is the first time the P-Fin Index assessed whether people also understand longevity, whereby the findings suggest a major challenge to retirement planning and investing.  

More specifically, the P-Fin Index asked respondents about the life expectancy of Americans who are age 60. All told, less than 4 in 10 (37%) respondents knew the correct answer, while more than half (53%) said either that they did not know, or they underestimated how long they would likely live.

“If you don't have a realistic understanding of how long you are likely going to live, you are missing one of the most foundational components of any plan: a time horizon,” observes Surya Kolluri, head of the TIAA Institute. “If we can improve people's longevity literacy, we can help create better retirement plans and increase their confidence.”

Financial Literacy Haves and Have Nots 

Not surprisingly, U.S. adults with greater financial literacy tend to have better financial well-being, which the researchers note holds true when controlling for other factors, such as age, income and education. In fact, the findings from retirees with strong “longevity literacy” show that:

  • 81% saved for retirement while they were working, compared to 57% of those with poor longevity literacy.
  • 54% have tried calculating the overall amount they need to save, compared to 30% of those with poor literacy.
  • 40% find it very easy to make ends meet — almost twice as many as those with poor literacy (23%).
  • 40% are very confident about having enough money to live comfortably throughout retirement, compared to 25% of those with poor literacy.
  • Only 17% said they have a lifestyle that falls short of their pre-retirement expectations (for those with poor literacy, more than twice as many (37%) agreed).

The findings also show a positive relationship between financial literacy and indicators of retirement readiness among workers. In examining retirement preparations among workers age 40 and older, 28% overall are not saving on a regular basis and only 47% report having tried to determine how much they need to save for retirement. But when looking across financial literacy levels, the differences are striking. Among those with very low financial literacy, only slightly more than half (54%) are saving for retirement and only 25% have planned for retirement. In comparison, the analogous figures among those with very high levels of financial literacy are 90% and 68%, respectively.

Meanwhile, women were found to have a more accurate understanding of longevity than men. According to these findings, 43% of the women polled demonstrated strong longevity literacy, compared to only 32% of men. That stands in sharp contrast to overall financial literacy levels, where men consistently rank higher.

The researchers suggest that a possible explanation of the difference could be that men have traditionally spearheaded their families’ financial decisions — including how they will save for retirement — so they often display more financial literacy. In contrast, women have traditionally been more engaged in healthcare decisions, which helps their longevity literacy.

“This research shows that 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,” says Annamaria Lusardi, professor at GWU’s School of Business, and founder and academic director of GFLEC. “Along with making it easier for people to access quality retirement plans and save appropriately, raising the rate of longevity literacy is a clear and urgent need for our country,” adds Lusardi, who has written extensively about financial literacy issues.