The good news is that it’s likely we’re going to live longer than we think we are. The bad news? We probably aren’t financially prepared to do so.
A survey by the Society of Actuaries (SOA) found that many people don’t understand the meaning of “average life expectancy,” and more than half of retirees and those approaching retirement underestimate the number of years they are likely to live.
In the 2010, the average life expectancy for newborn Americans was 75.7 years for males and 80.8 years for females. What most people who consider these numbers fail to grasp is that men who reach age 65 in at least average health have a 40 percent chance of living to 85. Women in the same situation have a better than 50 percent chance.
This could have serious consequences for people saving for retirement who fail to account for the potential that they will live longer than expected.
The SOA study findings present a solid case on behalf of annuity products, which protect against instability in the stock market and offer a guaranteed income for life – even if you live longer than you think you will.
Yet, only a third of retirees and 27 percent of pre-retirees have a retirement product, either through an employer plan or an individual annuity, that will provide them with income for life and protect them against outliving their savings, the SOA notes.
Still, individual annuity contracts paid more than $45 billion in benefits in 2010, providing those who do benefit from them with a solid financial foundation to help them make the most of the years they may not have realized they had.
- See also, "Mary Beth Franklin: Clients short on understanding of longevity risk," in InvestmentNews.