In a financial-advice essay for the AP, Nerdwallet's Liz Weston notes that women often don’t score as well as men in surveys of financial literacy. One area where they seem to do better is “longevity literacy,” or understanding how long they are likely to live. Longevity literacy is essential to smart retirement planning. Overestimate longevity, and you could retire too late or scrimp too much. Underestimate it and you could run short of money. In a recent TIAA Institute study, 43% of women correctly estimated the life expectancy of 60-year-old women in the US. (The right answer was 85.) Only 32% of men chose the correct answer for the life expectancy for 60-year-old men, which was 82. Men also were far more likely than women to underestimate life expectancy—and that’s a huge potential problem for both sexes.
A man who expects to die in his 70s might draw too much from retirement funds or start Social Security too early. That could leave him—and the spouse who may outlive him—with too little income later on. “A lot of people do OK in their first 10 years or 15 years of retirement,” says actuary Steve Vernon, a former research scholar at the Stanford Center on Longevity. “It’s often in their late 70s and 80s that they started to struggle.” The thing about longevity is that it’s persistent. The longer you live, the longer you are likely to live. There’s a 50% chance that at least one member of a heterosexual married couple age 65 will be alive at 92. With longer lives comes “longevity risk”: the chance that people will outlive their savings.
The single most powerful way to mitigate longevity risk is to delay claiming Social Security benefits. They can start as early as age 62, but applying before your full retirement age—currently between 66 and 67—means your check is permanently reduced. Delaying your application beyond full retirement age can add 8% each year you wait, until your benefit maxes out at age 70. Delaying is particularly important for the higher earner in a married couple, since it’s the higher earner’s benefit that determines what the survivor gets after the first spouse dies. A 2022 paper for the National Bureau of Economic Research found that virtually all American workers ages 45 to 62 should delay their applications beyond age 65 and that more than 90% should wait until age 70. But currently, only about 10% of applicants wait that long, the researchers found.(Read the full piece.)
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