Many people retire only to realize that they haven’t saved enough money to be comfortable for the entirety of their post-working. Knowing this, are you saving enough money today to be in a good financial position decades from now, even post-retirement? If not, some new information might help put you on the right track.
A new preprint published in Social Science Research Network shows that it might be possible to protect people from making poor financial decisions earlier in life by providing them objective longevity information.
It is now well-accepted that income positively correlates with life expectancy. Indeed, poverty is a strong risk factor for all-cause mortality. Moreover, the rich enjoy up to a decade of more disability-free life compared to the poor.
In many cases, however, it is not simply about earnings but in how well these earnings are allocated. Saving up a percentage of monthly income can make a big difference later in life.
According to a study published in 2018, approximately 60% of older adults regret not having saved more during their working years. There could be many reasons why people choose not to save money, including poor judgement about their expected longevity.
In this new study, the researchers explored if accurate information about individual survival probabilities increases regret for undersaving earlier in life and, therefore, potentially prevents poor financial decision making.
The researchers conducted a survey among over 1,700 American adults over the age of 50 with an average age of 72.5.
The participants were divided into three groups. One group, called T1, was asked “What is the percent chance that you will live at least X more years?” The T2 group was asked the likelihood of survival question, but then was also told the average number of remaining years for someone in their position. Groups T1 and T2, as well as a control group, were then asked “Do you think that what you saved was too little, about right, or too much?” and a few other regret-related questions.
The results showed that about 60% of respondents regretted not having saved more, 40% regretted not having bought long-term care insurance, about 40% regretted not working longer, and 10% regretted being financially dependent on others.
The researchers show that providing objective longevity information increases the participants’ financial regret. In other words, when people are given probabilities about how much longer they are likely to live, they consider saving more money, buying insurance that makes sense for such a long lifespan, and making decisions to protect themselves against financial problems throughout their lives.
On the other hand, no difference in terms of financial regret was shown between the control group and the T1 group. Therefore, it is not enough to ask people about their perceived longevity. Instead, it is important to inform the public what their chances are to survive to old age.
This study demonstrates that inaccurate perception of individual longevity prospects seems to be a major reason why older people end up with financial regrets. It is therefore of extreme importance that members of the general public consider their own longevity to help them avoid making financial mistakes earlier in life and secure lifelong financial stability. This only becomes more true in a world with considerably longer lifespans.
So, how are you preparing to be financially secure with a longer lifespan? Let us know in the comments below!
I’m Ryan O’Shea, and we’ll see you next time on Lifespan News!