Two-thirds of Americans misjudge their life expectancy… and that blind spot could be putting their retirement savings at risk.
Only 33% of adults can accurately estimate how long a 65-year-old will live. Some 32% take it lightly, 13% take it too much and 22% admit they don’t know, according to a new report by the TIAA Institute, conducted in collaboration with the Global Financial Literacy Excellence Center (GFLEC). But the reality is that retirees often spend 20 to 30 years or more in retirement, and underestimating your life expectancy can lead to less savings — or worse, the risk of bankruptcy.
“If we underestimate our life expectancy, we are not doing the right things now,” Surya Kolluri, head of the TIAA Institute, tells Money. “It’s not like we’re asking anyone to spend more money or save more money. We’re just saying that knowing you’re going to live longer will make you think differently about your life.”
That misunderstanding doesn’t just reflect a knowledge gap; it shapes how people plan for retirement. According to the report, only 48% of workers who expect to spend less than ten years in retirement do so, compared to about 71% of those who expect to retire longer.
Those who anticipate a short retirement also tend to save less when they contribute. Of that group, about a quarter save 5% or less of their income, while relatively few save more than 10%.
But that gap goes beyond savings. Workers who expect to retire shortly are also less likely to plan. Few have calculated how much they will need or seek professional advice. In other words, people who think retirement will be short are often preparing for it that way, even though the reality may seem very different.
Retirement costs of poor health
So why do so many Americans get it wrong? Part of the issue is that many people are correcting misconceptions about life expectancy.
Life expectancy statistics that most people hear — often cited by agencies such as the Centers for Disease Control and Prevention, or CDC — reflect estimates at birth, including early deaths. But for someone who has reached the age of 65, the life expectancy is much greater. On average, a 65-year-old man today will live to age 82 or 83, while a woman can expect to live to 85, according to the Social Security System’s life tables.
The number most people have in mind is life expectancy, which covers the entire population, Kolluri explains. But once you reach the age of 65, that number is higher by definition.
People also tend to rely on personal experience rather than comprehensive data. People often think of their family – their parents or grandparents – but we are not our grandparents, explains Kolluri. “Our education may be different. The zip code we live in may be different. The state of medical technology may be different,” he adds.
Misunderstandings are also not equally distributed across age groups. “Those nearing retirement tend to have a keen appreciation of how much time they need to plan, while for younger Americans they may feel invisible,” Kolluri said.
People in their 40s and early 50s, in particular, may face competing financial priorities, such as raising children, paying for college and caring for aging parents. As a result, thinking about how long retirement will last can feel like a distant priority. “They are completely focused on dealing with what is happening now in their lives. To them, how long they will last in retirement may sound like a distant question,” Kolluri said.
The report also finds a gap in how men and women view longevity. Men, for example, are more likely to underestimate life expectancy than women. When asked how long a 65-year-old lives on average, 40% of men underestimate the answer compared to 31% of women. Kolluri says it may be because women are often involved in caregiving and medical decision-making, giving them a closer look at how long people tend to live.
It is encouraging that this is a fixable problem.
People who spend time thinking about living longer tend to have better savings habits, plan more about how much they’ll need and feel more confident about retirement, Kolluri explains.
Another easy way to adjust is to think that your retirement may last longer than you expected. Start by building in the buffer. For example, add an extra ten years to your planning horizon to better account for longevity risk.
“If we can help people visualize their life expectancy — like adding 10 years to what they’re planning — that will allow them to re-evaluate,” Kolluri said.
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