Underestimating Longevity Could Undermine Your Retirement Nest Egg | SRES®

Underestimating Longevity Could Undermine Your Retirement Nest Egg

SRES® Staff
Retirement dreams with senior couple's hands holding a pink piggy bank symbolizing their shared commitment to saving for future and retirement pension

Maybe you’ve done all the right things—saving, investing, and managing debt—to build a solid nest egg to live out your retirement comfortably and cover critical issues like housing, medical costs, long-term care, vacations, and hobbies. But have you considered how long you’ll live? Will your plans and finances be sufficient to take you to 90 or 100 years old? 

The TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington University School of Business found that most people need greater longevity literacy. After all, underestimating your longevity affects retirement readiness and could erode your nest egg, particularly if there are spikes in housing, food, healthcare, and energy prices. 

Its recent study “An unrecognized barrier to retirement income security: Poor longevity literacy” notes that retirement savers with strong longevity literacy have greater confidence that they’re saving enough for retirement than those with weaker longevity literacy. They’re also more likely to have figured out how much they need to save for retirement.

Yet only 12% of U.S. adults have strong longevity literacy, says the report. That lack of understanding is problematic, given that retirement savings and planning must be based on an accurate understanding of how long retirement could last.

“The fact that 30% of 65-year-old men and 40% of 65-year-old women in the U.S. live to at least age 90 should have a significant influence on retirement planning and saving, as well as decumulation decisions,” researchers wrote.


Measure your life expectancy

To improve your longevity literacy, try an online calculator and get a handle on how long you may live. The calculators predict your life expectancy based on things like age, family history, diet, exercise, and drinking and smoking habits. 

Here are four options. 

  1. Blueprint Income
  2. Blue Zones True Vitality Test
  3. Living to 100
  4. Project Big Life

Plus, there are ways to improve your financial picture if you’re over age 50. Here are four. 

  1. Talk with a financial planner. Since money management and developing a sound retirement strategy can be complex, find a financial planner to help you set goals, look at your complete financial picture—assets, liabilities, taxes, and so forth—and create an appropriate long-term plan. Find planners at the National Association of Personal Financial Advisors and the Certified Financial Planner.
  2. Make catch-up contributions – Take advantage of catch-up contributions that allow those 50 or older to make extra contributions to retirement accounts. See “Catch-Up Contribution: What It Is, How It Works, Rules, and Limits” and “Issue Snapshot - 401(k) Plan Catch-up Contribution Eligibility”.
  3. Consider a Roth Conversion. Since you could be on the hook for hefty taxes on traditional IRAs in retirement, converting those dollars to a Roth IRA could make sense. A Roth IRA allows you to take out money tax-free and avoid required minimum distributions. Still, the conversion can be complex, so talk with a financial planner and tax advisor to ensure the strategy fits your retirement goals well. For more, see “Roth IRA conversion: Here’s everything you need to know before converting” and “Doing a Roth Conversion Like This Can Minimize Your Taxes”.
  4. Maximize Social Security benefits – Though you can tap Social Security benefits at age 62, you’ll leave money on the table because benefits are reduced if you start taking Social Security before your full retirement age. For example, if you turn age 62 in 2024, your benefit would be about 30% lower than it would be at your full retirement age of 67, according to the Social Security Administration. Also, see “Should You Take Social Security at 62, 67 or 70?”.