Fear And Longevity

An action plan to help your clients make it all the way through

by Tamiko Toland and Paul Yakoboski

Death is a doozy of a conversation opener, but it’s worth finding out how well clients know how long the average retiree will live—for their sake and yours. The uncertainty of a person’s lifespan makes retirement planning challenging due to two complementary concerns: on the one hand, the risk of running out of money and, on the other, the risk of not spending enough in retirement.

Most people expect financial professionals to discuss retirement in terms of investment returns and want you to answer the question, “What magic number does my nest egg need to hit for me to retire?” Instead, you have the opportunity to turn that question around and explain, “This is how we plan for your savings to last the rest of your life.”

Longevity is both the lynchpin and the “X Factor” of retirement risk. And the reality is that longer lifespans have broader implications for retirees than managing cash flows in retirement, itself no small task. Taken together, the topic of longevity creates a wealth of opportunities for financial professionals to guide their clients into—and through—retirement with grace.

How informed is the average American about longevity? The TIAA Institute-GFLEC Personal Finance Index (P-FIN Index) explores financial literacy and its implications—and a new focus specifically on longevity literacy shed light on important insights that could inform how (and what) you communicate with your clients.

The Longevity Quiz

The P-FIN Index examined longevity literacy by testing basic understanding of how long people tend to live in retirement. Survey respondents were asked the average length of time someone of their gender will live after age 60. In addition to the correct answer, there were options that over- and underestimated life expectancy. They also had the opportunity to answer “don’t know.”

The results? Overall, the study found that 37% answered correctly whereas 35% got it wrong—either over-or undershooting. The remaining 28% said they didn’t know.

It comes as no surprise that younger people may not be aware of how long they could be relying on their savings to sustain them through retirement. But even among Gen X and the Silent Generation, fewer than half answered correctly. Age may bring wisdom, but you cannot assume that even clients who have already retired are literate about longevity.

This is why it’s important to shift the conversation. Clients may tune out on the topic of financial literacy, but they are more likely to engage passionately when you talk about how long people will live. Reframing retirement discussions to the boon of longer life spans shifts the conversation to actions that will meaningfully affect freedom and security for decades into the future.

Source: TIAA Institute GFLEC Personal Finance Index (2022).

Women More In-Tune With Life Expectancy

The second dimension with significant differences is the gender gap. Overall, more than twice as many women knew life expectancy at age 60 (43%) than underestimated it (19%). Compare that with men, who were evenly split at about one-third. And a significant discrepancy between men and women’s knowledge of longevity remains true at all ages.

Source: TIAA Institute GFLEC Personal Finance Index (2022).

Women tend to live longer than men and are likely to reach retirement with less in savings. Whether these factors have anything to do with it, women on the whole are more aware of longevity, so they may start out with greater concerns about retirement and be especially open to solutions. The data support the premise that it’s worth keeping this discrepancy in the back of your mind when talking to individual clients or a couple—especially when they don’t start out with the same beliefs about lifespan.

Longevity Awareness: Foundation for Planning

Of course, you can never assume that someone does (or doesn’t) sit across from you with awareness of this key retirement fact. Therefore, no matter what, it’s safe to level set on longevity expectations—both to gauge a client’s understanding of the topic and as foundational education. A basic orientation on the topic can lead the way to a conversation about the planning process that will make more sense, regardless the life stage of the client.

The survey question from the study is a springboard to anything from an introduction to planning concepts, the finalization of a strategy, or something in-between. Bear in mind that those answers represent aggregated statistics, which are directionally helpful but don’t speak to individual circumstances. Longevity varies widely based on factors besides gender to include demographics like race and income level, not to mention health. To this last point, many people have a handle on their family history or health conditions that they believe may affect their life span. While it isn’t necessary to put on an actuary hat, the key is to anchor the longevity conversation around a realistic number as a starting point.

Retirement planning hinges on two crucial facts about longevity. First, it may be longer than you think. Second, even the most longevity-literate don’t know exactly how long they will live and what their life in retirement will look like. Plus, even those who have a good handle on longevity may not have a solid enough foundation in financial literacy to act decisively.

Practically speaking, clients are going to buy into the solution and value your advice most if they understand the problem itself, no matter what strategy you ultimately recommend. But there’s also a striking relationship between longevity literacy and outcomes in retirement: the study found that longevity-literate retirees are more likely to report having a “very easy” time making ends meet at the end of the month (40%) than their peers with poor longevity knowledge (23%).

Having enough income in retirement is important, but it’s far from the only concern tied to longevity. Think of longevity as a picture frame. The events that take place within retirement and the steps that people can take to have a longer quality of life are the picture. Financial professionals are able to bring critical information to clients to improve their quality of life and finances in retirement.

Planning Includes Protection Against Dementia

As people live longer, they also run the risk of having to deal with major health challenges and dementia. Planning ahead is critically important because it may be too late if they put it off—and the risk is higher than most people think. In fact, two out of three Americans will experience some level of cognitive decline by age 70 (Jo Mhairi Hale, 2020). Furthermore, even mild cognitive decline puts retirees at greater risk of making unwise decisions and makes them more vulnerable to fraud and elder abuse.

Fortunately, there are steps that clients can take to protect themselves, and financial professionals are ideally positioned to steer them in the right direction. For example, all clients should understand the importance of involving people they trust to step in and should understand the difference between naming a trusted contact and assigning a power of attorney. The Thinking Ahead Roadmap initiative offers a comprehensive set of well researched resources and a guide that clients can use to protect themselves (https://thinkingaheadroadmap.org/).

Social Connections Keep People Going

After taking care of clients’ financial wellbeing in retirement, you can give them tips on how to enjoy that time and possibly live even longer. For example, many people don’t appreciate the importance of maintaining social connections as we grow older.

Most people may not know how important it is to have—and maintain—relationships with more than one social group (this does not include a life partner). In fact, one study showed that those with two social groups had only a 2% risk of dying in the first six years of retirement but that increased to 5% if they lost touch with one group and 12% if they lost touch with both (Steffens, 2016).

Determining where to live is an important factor in retirement planning, and clients need to factor in considerations like the breadth of their social circles in a given place. And financial professionals who incorporate these conversations into their practices are better able to provide their clients with satisfaction living in retirement.

Fight Fear with Facts (and a Plan)

Longevity literacy touches every part of the retirement conversation. As a financial professional, you may already implement an effective strategy to introduce the topic to your clients. But the P-FIN Index supports the idea that you cannot skip this step and that there are many dimensions where you can help your clients grapple with the implications of longer life spans.

Most people want to avoid talking about delicate topics like cognitive decline, but they may be more receptive when you can present an action plan and not simply wave around a set of frightening statistics. After all, the uncertainty of retirement can make it difficult to take decisive action and financial professionals need to fill their quivers with information and resources to make that journey satisfying and successful.

Sidebar:

The TIAA Institute-GFLEC Personal Finance Index (P-FIN Index)

The TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC, part of the George Washington University School of Business) examine financial literacy levels among U.S. adults through a survey conducted annually since 2017.

The P-FIN Index measures personal finance knowledge across eight areas: earning, consuming, saving, investing, borrowing, insuring, understanding risk, and gathering information. Findings are available for a range of socio-demographic groups. In 2022, the 3,582 Americans surveyed were also asked a question about life span to measure longevity literacy. In addition to the findings mentioned here, the summary report shares greater detail and insights into the relationship between longevity literacy and retirement readiness.

More information about the 2022 results and highlights from each year are available at https://www.tiaa.org/public/institute/focus/financial-literacy#936245414. You can also visit the TIAA Institute site and sign up for updates on the latest research and thinking on retirement https://www.tiaa.org/public/institute.