Guessing Life Expectancy Significantly Impacts Retirement Plans

Workers who believe they’ll live longer typically plan to retire later, although unexpected events can sometimes get in the way of those plans, finds research out of Boston College.

“Workers who think they have excellent chances of living to ages 75 and 85 expect to work longer and retire later than workers who think their chances are poor,” write research economists from The Center for Retirement Research at Boston College. “Subjective life expectancy also affects actual retirement behavior, though to a lesser degree than retirement expectations.”

The researchers used data from the Health and Retirement Study, a survey administered to older workers and retirees every two years that asks respondents to estimate their probability of living to ages 75 and 85. The CRR’s analysis used the responses to these questions for workers age 50 to 61 as indicators of their subjective life expectancy. 

On average, respondents estimated they had a 68% chance of living to age 75 and a 47% chance of reaching age 85. Those results are similar to “objective'” life expectancy estimates derived from actuarial life tables based on age, sex, and birth year, which produced a 70% chance of the workers in the sample living to age 75, and a 42% chance of reaching age 85. 

As for when workers plan to retire, the most frequent answers among HRS survey respondents were ages 62 (48%) and 65 (28%). 

The CRR calculated the estimated relationship between workers’ retirement plans and their longevity expectations, controlling for variables such as gender-based life expectations and age at the time of the survey. 

The research economists concluded that subjective life expectancy has a “substantial and statistically significant effect on retirement plans” as increases in the age workers expect to reach raises their expected retirement age by four months.

“Actual retirement behavior also increases with subjective life expectancy, but the relationship is somewhat weaker and the estimates are less precisely measured,” the researchers continue. “These results are consistent with the hypothesis that while workers who expect to live relatively long plan on retiring later, actual retirement behavior is complicated by unanticipated shocks.” 

Read the paper, “Do Longevity Expectations Influence Retirement Plans?”

Written by Alyssa Gerace

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