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Retirement Weekly: Most people can’t answer this one life-and-death question

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Nearly two-thirds of U.S. adults are unable to correctly answer the following question that is perhaps the most basic of any when it comes to retirement financial planning.

The question was included in a recently-completed survey of more than 3,500 people in the U.S. by the TIAA Institute and George Washington University’s Global Financial Literacy Excellence Center (GFLEC). This is the sixth year in a row in which these two organizations have measured Americans’ financial literacy, though this latest survey is the first in which they ask this question about what they refer to as “longevity literacy.”

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The exact wording of the question depended on whether the respondent was male or female. For males, the question was: “What is life expectancy among 60-year-old men in the U.S.?” Respondents were given four choices:

  • About 16 more years (age 76)
  • About 22 more years (age 82)
  • About 28 more years (age 88)
  • Don’t know

Female respondents received the identical question, except that it focused on the life expectancy of the average 60-year old woman, and the multiple choices listed different ages.

Give up? The correct answer for men is about 22 more years—until the age of 82. For women it is 25 more years, until age 85. Only 37% of all respondents got it right.

It’s worrying that this percentage is so low. As Annamaria Lusardi, a George Washington University professor and GFLEC’s Academic Director, pointed out this week, “if we want to create better retirement outcomes, we need to start by making sure people understand how long they are going to live in retirement.”

The accompanying chart summarizes the findings for different demographic groupings. It focuses on the percentage of respondents who either said they didn’t know or who significantly underestimated the correct answer. The percentages therefore reflect the proportion of respondents who are most in danger of making ill-advised retirement financial planning decisions that result in their outliving their money.

These results help to explain why relatively few retirees use annuities as part of their retirement financing. If they don’t appreciate the very real risks of outliving their money, then they will tend to under-emphasize the benefits of a guaranteed lifetime income.

Women beat men!

The averages plotted in the chart mostly make intuitive sense. The older-aged cohorts are far more aware of average life expectancy than the younger-aged ones. More surprising is the difference between women and men. Unlike most other aspects of financial literacy, in which men on average score significantly higher than women, it was just the reverse when it came to “longevity literacy.”

Why would this be the case? The TIAA/GFLEC researchers speculate that it “could be that men have traditionally spearheaded their families’ financial decisions, including how they will save for retirement, so they often have more financial literacy. But women have traditionally been more influential in healthcare decisions, which helps [explain] their longevity literacy.”

Regardless of the cause, these results underscore the importance of taking an holistic approach to planning for retirement. It’s all too easy for us to get so lost in the weeds that we lose sight of the bigger picture. And the biggest picture of all is how long our retirements are likely to last.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected].

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