Thirty-five percent of pre-retirees and 34% of retirees surveyed underestimated population average life expectancy by five or more years, according to the report on the study.
“Although some retirees did correctly identify average life expectancy at age 65 as around 17 years for men and 20 years for women, far too few appreciate that this means that half of them will live beyond these projections,” the report said.
Respondents generally said they did not believe that they would live as long as the average person their age and gender (55% retirees, 51% pre-retirees), and only 29% of each group said they believed they would live longer than the population average.
The society pointed out in its report that those who are covered by a defined benefit pension plan and eligible for Social Security have greater protection against the risk of outliving their retirement resources than those covered by defined contribution retirement plans. Only about a quarter of respondents have addressed the risk of longevity by purchasing an annuity or choosing a pension option that guarantees income for life (27% retirees, 23% pre-retirees).
Strategies to address longevity risk that have been adopted by respondents include:
- Eliminating all non-mortgage debt (56% retirees, 44% pre-retirees),
- Saving as much as possible (56% retirees, 48% pre-retirees),
- Cutting back on spending (51% retirees, 45% pre-retirees), and
- Completely paying off mortgages (56% retiree homeowners, 36% pre-retiree homeowners).
Among strategies suggested in the survey for adjusting for living longer than expected, most (70%) pre-retirees and 53% of retirees said they were somewhat or very likely to “reduce expenditures significantly.” Forty-two percent of retirees and 54% of pre-retirees said they might dip into money that they might otherwise leave to heirs, while 35% of retirees and 45% of pre-retirees said they would be somewhat or very likely to deplete all their savings and be left with only Social Security.
The report “Longevity: The Underlying Driver of Retirement Risk” and other reports in the 2005 Risks and Process of Retirement series can be found on www.soa.org .