It should come as little surprise these days that people are living longer than ever, for a variety of reasons. Despite that widely known fact, people's approach to retirement planning hasn't changed. There is an increasing tendency among workers to outlive their savings during their golden years because they do not have the kind of coverage required to live for two or three decades beyond their working years.
There's sufficient data to suggest that if someone in the U.S. turns 65 in the year 2020, they could be expected to live about 40% longer than the average person who turned 65 in 1950, according to a study from The Longevity Project, Principal Financial Group, and the Stanford Center on Longevity. Moreover, because of the size of the baby boomer generation, the number of people who are retiring from the workforce is more than twice what it was at the turn of the century.
Yet relatively few people are doing as much as they reasonably could to ensure their long-term financial viability, based on the ever-increasing odds that they live for a long time after retirement. For instance, 64% of respondents say they will rely on Social Security as a key part of their retirement income, well ahead of options like personal savings and investments, retirement plans from their employers, or annuities — at rates of 38%, 35%, and just 7%, respectively.
The problem with Social Security
Of course, with the majority of people expecting to rely on Social Security throughout their retirement, there are often concerns as to the long-term viability of the program. Simply put, people do not believe that anything will be done to fix some of the problems with the system, and almost three-quarters of Americans believe it would have to be on the precipice of financial insolvency before lawmakers intervened, according to a recent PlanGap survey. That trend was particularly prevalent among those farthest out from receiving benefits (the under-45 demographic) and closest to it (65-plus).
Through this lens, it would appear most Americans should believe it prudent to diversify long-term financial planning efforts.
Seeing the disconnect
The good news is that while people aren't necessarily setting themselves up for a comfortable retirement if they're going to live into their 80s and 90s (or beyond), they at least understand that this is the case, rather than believing they're on firm ground despite shortcomings in their planning.
Indeed, only 21% of people who are still working say they are "very confident" that they have enough money saved to keep them comfortable in retirement, less than half of the 46% who are "not at all confident" in that fact, according to an online survey of thousands of Americans over the age of 25 from Principal. While 35% of retirees do have that critical level of confidence, almost 1 in 4 do not. Altogether, 37% of respondents are not confident in their retirement financial plans.
Fortunately, these numbers are trending in a positive direction today, despite the COVID-19 pandemic, and half of workers have not made any changes to their short- or long-term financial plans during this time. In fact, fewer than 1 in 3 of those still in the workforce say they are concerned the outbreak and its resulting economic downturn will force them to delay retirement. However, more than 70% of retirees are worried about the financial fallout for themselves, family, and the broader economy.
Overall, about 60% of those polled said COVID has had at least some impact on their saving and investing decisions; not surprisingly, this result was larger for those still in the workforce.
Life insurers increasingly involved
With some 10,000 Americans hitting that milestone age of 65 on a daily basis this year, longevity creates new challenges for individuals and entire industries. That may be a particular concern for the growing number of people dealing with Alzheimer's these days. There are about 5.8 million people across the country who fall into that category, and the current cost to care for them amounts to roughly $290 billion annually — about $50,000 per person per year, according to the Forbes Technology Council.
For this reason, many life insurers who also offer long-term care coverage have a vested interest in getting out in front of this issue with better diagnostic efforts. That could include encouraging workers who are in their 40s and 50s to begin undergoing tests that allow them and care providers to get a baseline level of cognitive function. And, if necessary, they can begin to reduce risks around this issue. Certainly, no one welcomes cognitive decline, so this is something that should be an easy sell for insurers, and can be good for their bottom line and the mental well-being of their policyholders.