Longevity: Make It For Better, Not Worse

Longevity gains are changing people’s outlooks on planning and income needs, but more must be done.

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Older Americans are paying attention to the steady stream of research findings and stories about impressive gains in longevity.

In particular, we have a pretty accurate view of the increases achieved in average life spans, according to the sixth biennial study of longevity sponsored by the Society of Actuaries (SOA).

Ask Americans age 65 and older how much longer they expect to live, and you're likely to get a fairly accurate response, the SOA reports. "By age 65, U.S. males in average health have a 40 percent chance of living to age 85 and females more than a 50 percent chance," the report says, and "the survivor of a 65-year-old couple is more than 70 percent likely to reach 85."

There also are encouraging signs that this recognition is leading to changes in financial planning and preparation for a longer retirement. In particular, greater attention is being paid to the age at which people begin to collect Social Security.

The program's early-retirement benefits can begin at age 62, but rise by about 8 percent a year for each year benefits are delayed until age 70. As people have become more confident that they will live to older ages, the appeal of delaying Social Security is on the rise.

But if we "get it" about longevity, the SOA warns, we still have a very sketchy understanding of longevity risks, a catch-all term that encompasses concerns about amassing enough money for retirement and then producing sufficient annual income payments so that we do not outlive our assets. "Many fail to understand the potential consequences of living beyond their own planned life expectancy," the report says. "Many people are not focused on risk management, and making assets last for the rest of their lives is not their highest priority."

In thinking about the implications of longevity, three strong themes emerge from the SOA's research and public polling:

1. Beware of the averages. By definition, our collective life spans represent an accurate figure on average longevity. But individual life spans differ greatly from these averages. "When people are told they will live to an age such as 80 or 85, they don't realize this means there is a 50 percent chance they could live longer than that age," the report says. People with lots of education and financial resources are likely to live much longer than average.

Likewise, Americans with little money or schooling are likely to live shorter lives, a fact that is often overlooked in proposals to increase the Social Security retirement age. The nation's longevity gap is distressingly large, the SOA report notes. "In the poorest part of the United States, life expectancy at birth is as low as in countries like Panama or Pakistan, a full 15 years behind the wealthiest and healthiest regions of the nation, where it rivals that of world leaders, Switzerland and Japan."

2. Understand your health risks. Lifestyle choices dominate longevity gains until we reach old age, the SOA says, at which point genetics is the greatest driver of remaining life spans. Beyond influencing how long we live, the ways we take care of ourselves can also determine the quality of our lives as we age as well as the financial burden of older-age health expenses.

Women face more serious older-age health issues than men, in part because they live longer. "One actuarial research study predicts that for a healthy male age 65, 80 percent of his remaining lifetime will be spent non-disabled, 10 percent in mild to moderate disability, and another 10 percent in severe disability," the report says. "For females, the corresponding disability percentages are considerably higher, with 70 percent in healthy status and approximately 15 percent in each of the two stages of disability."

Again, these are averages. Individual outcomes can be dramatically influenced by our behavior. The report's polling of older Americans found that nearly half of those surveyed said their health and lifestyle decisions were major factors in their personal longevity expectations. "The message is beginning to be heard and heeded," the report says.

3. Anticipate cognitive decline. Even normal aging brings reduced mental abilities, making it harder to understand money matters, make sound financial decisions, and protect yourself from financial fraud.

For the considerable population that will have some degree of dementia, the problem can be much worse. Research cited in the SOA report suggests that a household's prime financial decision-maker hangs onto this role for too long. By the time the household recognizes the problem, it may be too late to avoid serious money problems that could have been avoided. Consider involving younger family members in financial planning and decisions. Even if they initially serve only as a back-up to your own financial planning and management efforts, their advice can be helpful. And they will be likely to see signs of cognitive decline before you do, and will already have the knowledge about your finances to step in quickly and provide help.

Twitter: @PhilMoeller