Take the long view about retirement

DO YOU think you’ll make it to 75? That was the question the massive Health and Retirement Survey posed to 26 000 Americans over the age of 50 in 1992.

Specifically, the researchers asked respondents to guess their odds of living to age 75: 10 percent? 50 percent? 100? Now, nearly 25 years later, researchers can evaluate how well the respondents did at guessing their chances of living so long – simply by counting how many of those people actually made it to 75.

In general, people wildly underestimated their chances of reaching 75.

Of the respondents, 7 percent said there was simply no way they’d live to 75 – they gave themselves no chance of living so long.

But nearly half this group did live to 75 – or longer. Among people who gave themselves 50-50 odds, 75 percent saw their 75th birthday.

The numbers come from a fascinating new Brookings Institution study on longevity and retirement planning.

The Brookings researchers noted, with some degree of alarm, the big gap in most cohorts between their expected and actual lifespans.

“Individuals do not fully understand the longevity risk they face,” write authors Benjamin Harris and Katharine G Abraham. As a society, we are somewhat obsessed with the risks of dying. But we’re less accustomed to considering the risks of living long – of outliving our retirement savings.

With lifespans increasing and social security on shaky financial footing, people are going to be depending more on their personal savings and retirement accounts to support them through old age.

In order to assess how much money we will need, we first need to have a realistic sense of how long we will live. The Brookings study suggests many of us still have some work to do on that front. – The Independent