Economy Concerns and Lack of Awareness of Longevity Impacting Retirement Planning

Longevity has many consequences, yet more than one-half of American adults lack a basic understanding of how long people tend to live in retirement. This lack of awareness can keep people from saving enough money to last as long as they live. The need for preparing for longevity and long-term health care has never been greater.

Combining this lack of awareness, along with their concerns about the economy and inflation, can have a devastating impact on someone's retirement in the years and decades ahead.

An annual survey of more than 3,500 people nationwide by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington (GW) University School of Business asked respondents about the life expectancy of Americans who are 60. The results show this lack of longevity awareness.

The Personal Finance (P-Fin) Index is an annual survey of more than 3,500 people nationwide by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington (GW) University School of Business that serves as a barometer of financial awareness.

60-Year-Old May Live More Than 20 More Years

More than half (53%) said they didn't know or underestimated how long they'd live, and only 37% of those surveyed knew the correct answer.

American men and women, on average, retire in their mid-60s. However, a lot of them are not aware that the Social Security Administration estimates that at age 60, males may live an additional 22 years and women an additional 25 years.

Surya Kolluri, head of the TIAA Institute, says that longevity literacy is an overlooked factor in addressing retirement preparedness.

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. If we can improve people's longevity literacy, we can help create better retirement plans and increase their confidence.

Not on Track with Retirement

Only 40% of Americans in the workforce believe they are on track with their retirement savings. Meanwhile, U.S. News and World Report surveyed 2000 people about their retirement planning. Inflation and economic uncertainty have made many people more cautious about retirement planning. 

According to survey findings, 50% of participants said they had to put their retirement savings on hold at some point in 2022. In addition, 41% of those polled no longer make contributions to 401(k)s or other types of retirement plans.

The study showed that 50% of respondents anticipated halting retirement preparation in 2022. Additionally, 41% of those surveyed say they no longer contribute to 401(k)s or other retirement plans.

A majority of those polled seem to be adversely impacted by inflation and the economy. Their retirement plans reflect this concern, with 72% of respondents polled claiming to have revised their retirement plans in some way in 2022. 27% of this group significantly revised their plans and objectives.

Many People May Not Have Enough Money for Retirement

You combine that many people underestimate longevity and have slowed down their retirement funding; the results in the decades ahead can mean people may not have enough funds to enjoy their future retirement.

George Washington University Professor Annamaria Lusardi says their research shows that if people want to create better retirement outcomes, they need to understand how long they are going to live once they retire.

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.

The TIAA/George Washington University survey showed that those who were aware of longevity were ahead in retirement planning compared to those who were unaware:

• 81% saved for retirement while 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 easy to make ends meet – almost twice as many as those with poor literacy (23%).
• 40% are 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 pre-retirement expectations. For those with poor literacy, more than twice as many (37%) agreed.

Economy Improving in 2023?

The U.S. News and World Report survey respondents' predictions for the state of the economy in 2023 varied widely. When asked to predict the economy's health, 57% of respondents thought it would be stronger by the end of the year, while 43% thought it would be weaker. Only 13% of those anticipating growth believe it will be significantly stronger. Despite these differences, 61% of participants feel their retirement plans will improve in 2023.

The picture for younger generations, though, is more pessimistic, according to those polled. According to our survey, 79% of respondents think Millennials — those born between 1981 and 1996 — won't be able to retire until after turning 65. When Generation Z (those born between 1997 and 2012) is taken into account, this number marginally rises to 80%. 

Overall, 88% of respondents believe that the generation that follows theirs would find it harder to retire than they did.

Concerns for Future Recession and Social Security

In 2022, concerns about a potential economic recession increased along with inflation. According to the survey, 82% of respondents are concerned about how a future recession may affect their retirement assets and plans.

Similarly, more than half (57%) say they will have trouble sleeping in 2022 because of worry over their retirement or life savings. These results are consistent with their sleep quality study, which was conducted in August 2022 and found that 39% of respondents were concerned about the COVID-19 aftereffects, and 41% of those asked reported being unable to sleep because of anxieties about inflation.

Another issue that working Americans may be concerned about is the cost-of-living adjustment (COLA) to Social Security. The Social Security and Supplemental Security Income payouts will increase by 8.7% in 2023 to reflect inflation. While those who have already retired may find some solace in this, those still working and saving for retirement may have some concerns.

The Social Security retirement funds will run out by 2034, according to a prediction made in the 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, which was published in June. However, experts worry that this coming year's adjustment would exhaust the savings more quickly due to another COLA hike.

Although 65% of survey participants anticipate having to work after retirement to supplement their Social Security income, 74% of respondents say they are confident in their understanding of how Social Security works.

Aging Happens - Ignoring Longevity Has Consequences on Family and Finances

A majority of people surveyed reassessed their retirement plans since the start of the COVID-19 virus crisis. Whether you think COVID-19 is over or not, retirement and aging are coming, and being prepared is essential.

This research did not address health care and long-term health care costs. Long-term health care significantly impacts retirement assets since traditional health insurance and Medicare pays a minimal amount of these costs. 

Some people think Medicaid is an answer for long-term care; however, the program will only pay if the individual has little or no income and assets. Long-Term Care Insurance is available and pays billions in benefits, but this is still a small number of total expenditures for long-term health care. Some people think they can get coverage when they are older or need care, but LTC Insurance is medically underwritten and usually purchased when someone is in their 50s.

The impact of longevity, inflation, and reduced retirement assets underscore the need for long-term care planning. LTC Insurance is affordable for many people, especially if they are healthy and get coverage when they are younger.

Long-term health care costs are exploding nationwide but vary depending on where you live - LTC NEWS Cost of Care Calculator.

A lack of a long-term health care plan will put additional pressure on retirement income and assets and burden family members. Planning will reduce the impact on your family and finances but start by understanding that longevity is a hurdle you must plan for now.