Financial literacy is often not as good for women as it is for men. We seem to score higher in “longevity” literacy, or knowing how long you’re expected to live.
A longevity-literate approach is key to intelligent retirement planning. If you overestimate the length of your life, it could lead to you retiring too early or cutting back too much. If you underestimate it, then your finances could be in danger.
A recent TIAA Institute survey found that 43% of American women aged 60 correctly estimated their life expectancy. The correct answer was 85. In a recent TIAA Institute study, only 32% of the men correctly estimated the life expectancy at 60 for men. The correct answer was 82. The men were also more likely to underestimate life expectancy than the women, and this could be a problem for both genders.
If a man expects to live into his 70s, he may withdraw too much money from retirement accounts or begin Social Security benefits too soon. This could result in him and his spouse, who might outlive him, having too little money later.
Steve Vernon, an actuary and former Stanford Center on Longevity research scholar says that many people are able to manage their finances in the first 10 or 15 years after retirement. It’s usually in the late 70s or 80s when people start to have problems.
What do you need to Know about Life Expectancy ?
According to Vernon, the life expectancy figures that are often in the news don’t matter when it comes to retirement planning.
In December, the Centers for Disease Control and Prevention reported that the U.S. Life Expectancy had dropped for the 2nd year running. The CDC cited a number of 76.4 years, which is the life expectancy at birth. This figure is inclusive of infant mortality, as well as accidents, diseases and overdoses. It also includes homicides, suicides, homicides by accident, and homicides.
Longevity is a persistent thing. You are more likely to survive longer if you live longer. According to the Society of Actuaries, one in three men in mid-50s and one in two women will reach 90. At least one heterosexual couple aged 65 is likely to live until 92.
Longevity Risk: The chance of outliving your savings is increased with longer life expectancy. Surya Kolluri, the head of TIAA Institute’s financial security research, said that understanding and addressing this risk are important elements of retirement planning.
The majority of people do not know how to live long-term
According to a survey of over 3,500 adults conducted by TIAA Institute in 2022 and the Global Financial Literacy Excellence Center of the George Washington University School of Business, more than half of Americans do not understand the average lifespan of retirees.
The Personal Finance Index has been used to measure financial literacy for many years. Researchers added an additional question about longevity with multiple-choice answers last year. The researchers asked men “What’s the life expectancy of 60-year old males in the U.S.? “, while asking women “What’s the life expectancy of 60-year old women in the U.S.?”. (The correct answer was determined using Social Security data for 2019. )
Both men and women are equally likely to claim that they don’t know or chose the incorrect answer. Men were more likely than women to choose the incorrect answer, which underestimated life span by six years.
Kolluri explains that researchers are unsure why women demonstrate greater longevity literacy than men. He says that one hypothesis is women have traditionally been more responsible for caring for their elderly relatives, and are therefore better aware of the reality of aging. Women are also aware that they often live longer than their spouses and know that men do not.
According to Vernon, “I believe most women have a greater awareness of the importance of longevity and are more concerned with it.”
Researchers found that retirees with longevity literacy were more likely than those without it to say they could make ends meet “very easily” and be “very confident” about having enough money for their entire lifetime.
How to reduce the risk of longevity
Vernon says that the single best way to reduce longevity risks is to defer claiming Social Security.
If you apply before the full retirement age, which is between 66-67 years old at present, your benefits will be permanently reduced. Your benefit can increase by 8% per year if you delay your application past full retirement age.
The higher earning spouse in a couple should delay, as it is the benefit of the high earner that will determine the amount the survivor receives when the first spouse passes away.
In a 2022 report for the National Bureau of Economic Research, it was found that nearly all American workers aged 45-62 years old should postpone their application beyond 65 in order to maximize benefits. More than 90% of them should also wait until 70. Researchers found that only 10% of applicants are willing to wait until 70 years old.
According to Vernon, “Most people don’t know how long they will live after retirement and don’t make plans for this.”
The Associated Press originally published this article, which was written by NerdWallet.