The Longevity Illusion: Why Retirees Underestimate Their Lifespan

In the grand scheme of financial planning, retirement often stands as a beacon of hope—a period of relaxation, travel, and fulfillment after years of hard work. However, what many retirees fail to anticipate is just how long their retirement years might last. Longevity literacy, or the understanding of how long one may live, is a crucial aspect of retirement planning that often goes overlooked. Many retirees underestimate their lifespan, which can have significant financial and emotional implications. Let’s delve into this phenomenon and explore why it’s essential for retirees to grasp the reality of longevity.

The Longevity Mirage

Typically, retirement planning entails the estimation of the financial resources required to maintain one’s standard of living upon retirement. Nevertheless, a critical component within this equation—life expectancy—is frequently underestimated.

It is widely recognized that the mean lifespan of an American is somewhere between 75 to 80 years. Conversely, the notion that life expectancy increases with age is less widely recognized. At the age of 60, the average life expectancy of an American male is 82 years, whereas the average life expectancy of a woman is 85 years.

One should contemplate the trajectory of life expectancy expansion that has occurred over the last century. A person of American descent who was born in 1900 had a mere 47 years of life expectancy. That number increased to 68 by 1950. The United States witnessed a reduction in life expectancy from 79 in 2019 to 79 prior to the onset of the COVID-19 pandemic.

Over time, the phenomenon of extended lifespans has become increasingly noticeable as we have successfully surmounted numerous dangers that previously reduced our lives. A university researcher discovered that human lifespans increase by three years per generation through their investigation of those who live beyond the age of 65 in developed nations.

Why Do Retirees Underestimate?

Several factors contribute to retirees underestimating their lifespan:

Limited Perspective

During retirement planning, individuals often rely on their parents’ or peers’ experiences as a benchmark for their own lifespan. However, with advancements in healthcare and lifestyle changes, today’s retirees are living longer than previous generations. Consequently, relying solely on past examples may lead to underestimation.

Fear of Outliving Savings

The fear of running out of money in retirement is prevalent. To mitigate this fear, some retirees assume a shorter life expectancy, believing it will reduce the financial burden. However, this approach can be risky, as it may result in inadequate savings for an extended retirement period.

Overlooking Health and Wellness

People tend to underestimate the impact of healthy lifestyle choices on longevity. Improvements in diet, exercise, and medical care can significantly increase life expectancy. Retirees who neglect these factors may inadvertently underestimate their own potential lifespan.

The Financial Ramifications

Underestimating life expectancy can have significant financial consequences for retirees:

Depletion of Savings

If retirees outlive their savings due to underestimation of lifespan, they may face financial hardship in their later years. This could mean cutting back on essentials or relying on family members for support.

Insufficient Healthcare Planning

Healthcare costs tend to rise with age. Underestimating lifespan may lead retirees to underestimate their healthcare needs and fail to allocate adequate funds for medical expenses, including long-term care.

Social Security Shortfall

Claiming Social Security benefits too early based on underestimated lifespan may result in reduced monthly payments over the long term. Waiting to claim benefits can provide higher payments, especially for those who live longer.

Embracing Longevity Literacy

To address the longevity illusion, retirees must embrace longevity literacy—a deeper understanding of their potential lifespan and its implications:

Education and Awareness

Retirement planning should include education about life expectancy trends and the factors that influence longevity. By understanding these dynamics, retirees can make more informed decisions about their finances and lifestyle choices.

Flexible Financial Planning

Retirees should adopt a flexible approach to financial planning that accounts for the possibility of a longer lifespan. This may involve saving more, investing wisely, and considering alternative income streams, such as part-time work or rental income.

Focus on Health and Wellness

Prioritizing health and wellness is not only essential for a fulfilling retirement but also for increasing longevity. Retirees who maintain a healthy lifestyle are more likely to enjoy a longer, more active retirement.

Regular Reassessment

Retirement planning is not a one-time event—it requires regular reassessment. Retirees should periodically review their financial situation, health status, and life expectancy projections to ensure their plans remain viable.

Conclusion

The longevity illusion poses a significant challenge for retirees, often leading to inadequate financial preparation and unnecessary stress in later life. By embracing longevity literacy and understanding the reality of their potential lifespan, retirees can make more informed decisions about their retirement finances and lifestyle choices. Through education, flexibility, and a focus on health and wellness, retirees can better prepare for the opportunities and challenges of a longer retirement journey.

 

Please see disclosures here.

GLEN HEDRICK, ADVISOR

The Wealth of Advice is a financial blog that is focused on retirement and wealth information, with a little of everything else sprinkled in.

I manage portfolios for clients and myself at Old North State Wealth Management.

Disclosures can be found here.

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