Americans are living longer — but they aren’t prepared for retirement impacts

While on its face it represents positive momentum for health in the U.S., rising life expectancy also comes with a key financial concern — longevity risk, or the potential for someone to outlive their retirement savings. This is a key challenge that many prospective retirees may not be ready for.

This is according to research published this month and conducted jointly by the Nationwide Retirement Institute and the American College of Financial Services. This was part of a broader Nationwide campaign seeking to “explore the financial implications and consumer sentiment related to rising life expectancy.”

Research from the American College found that “extending a retirement by just 5 years from 30 to 35 years increases the risk of depleting savings by a striking 41%, based on historical market returns,” according to the research report. “And that risk only intensifies as lifespans continue to lengthen, particularly among healthy, higher-income retirees.”

Additionally, Nationwide found that many Americans appear to be underestimating their chances of living to the age of 100 and the accompanying financial demands that such a lifespan can bring. In a survey, only 29% of respondents indicated they would want to live that long.

The other 71% cited factors that make such a prospect unattractive, including “concerns about declining health and deep financial anxieties,” the report explained. “Roughly three in four fear they’ll run out of money before they run out of time.”

Economic volatility is adding to the challenges and concerns. The joint research found that 40% of non-retired Americans are planning to delay their retirements due to economic instability — namely inflation. The situation is severely exacerbated by an estimated 10% decrease in projected portfolio returns stemming from the U.S. economic situation.

This necessitates greater attention toward retirement planning, the organizations said in the report.

Michael Finke, a co-author of the research and a professor of wealth management at the American College of Financial Services, said it’s clear many people are underestimating how long they will live and that planning must include more inclusion of potential longevity.

“We consistently see that those who plan for longevity feel more confident about retirement,” Finke said. “The key drivers of that confidence? Working with an advisor, having access to guaranteed income, and building a plan that’s designed to last.”

There is also a “silver lining” in the data, the results noted. If Americans knew they would live longer, they would take more proactive steps to plan for a longer life. These include adopting a healthier lifestyle (58%); paying closer attention to finances while increasing savings (67%); and taking on less debt (63%).

In a recent discussion with HousingWire’s Reverse Mortgage Daily (RMD), Wade Pfau, a professor of retirement income at the American College, suggested that some of the current economic volatility could increase the number of conversations about reverse mortgages as a retirement planning tool.

“It’s always a matter of if you’re retired, and suddenly the market’s had this pullback and you need to take some distributions to meet expenses, being able to tap into something that’s not exposed to that volatility can be really helpful to manage your long term investment performance,” Pfau said in April.

“So that was the original justification for the [Home Equity Conversion Mortgage (HECM)] portfolio coordination strategy. And indeed, I think it still makes as much sense today as at any point, nothing’s really changed in that regard.”