Investors are greatly misjudging their longevity, and that’s affecting their ability to save for their retirement, suggests the results of a survey published by Jackson National Life Insurance.
The insurer surveyed more than 1,000 investors as part of its “Security in Retirement Series,” and found that only 12% of them had life span projections in line with the actuarial tables of the Centers for Disease Control and Prevention or the Social Security Administration. About 32% were underpredicting their longevity, while about 60% were overpredicting, according to Glen Franklin, assistant vice president of research, RIA and lead generation strategy for Jackson National Life Distributors.
“That puts them at risk for potentially delaying planning on things like long-term care that they would need to attend to and prepare for late in life, thinking they’ve got longer to get ready for it than they actually may have,” Franklin said.
To have adequate money later in life, it’s imperative that investors get realistic expectations of how long they think they will live so their resources will last as long as they do.
“If you way overestimate life expectancy by a significant amount … then you have to spread the assets out over a longer period, and it may impact the ability of the client to live at their desired lifestyle in retirement,” Franklin said. “If they underestimate, they could find themselves needing to reduce their lifestyle.”
There are multiple reasons investors are failing to arrive at the correct longevity number. In most cases, they are not using the proper foundation to reach that number. For instance, 40% of those surveyed said they use the age that their parents passed away as a barometer to predict their life expectancy. But that’s not a reliable source of information.
The survey also polled 400 financial professionals, and found a third of them had at least 25% of their clients running the risk of potentially outliving their assets.
Advisors would likely have more accurate projections of their clients’ longevity. Many plan for their clients to live to the ages of 90 to 95, while their clients were predicting they would live only to about 87, the study found.
Age isn’t an easy subject to talk about. But advisors are in good stead to broach the topic because they’re more objective, Franklin explained. They can look at the bigger picture and present relevant facts, including population averages.
“The thing about death is nobody knows when it’s coming, and so you should have a variety of scenarios addressed in the plan,” Franklin said.
Advisors can also help investors work through “recency bias”—when they allow recent events, such as market turbulence or high inflation, to dictate their long-term decisions.
“One of the things the advisor will want to help the client with is expanding perspective and not just considering 12 months ago or up to 24 months ago but thinking about the notion over a 10-year span,” Franklin said.
This is the first in the multi-part “Security in Retirement Series,” which Jackson conducted in partnership with the Center for Retirement Research at Boston College. The firm is set to roll the rest of the study out over the next two years, Franklin said. The first part is the current study on longevity risk. The firm is also conducting research for its next study on inflation risk, which will come out early next year.
The final two studies will be on healthcare risk and market risk; the former will come out late next year and the latter in early 2025.
“We at Jackson wanted to be a voice in the conversation for the industry around those risks,” Franklin said. “We are a for-profit enterprise [and] we feel in this case we’re delivering value to [advisors] and that will make them more favorably disposed to consider us when they have an annuity-based solution they would like to offer to their clients.”
