Will You Outlive Your Money?

A senior couple on a bike ride in autumn nature. Taking break, drinking water from sport bottle and fastening helmet. — (Image credit: Getty Images)

Ponder this question: On average in the U.S., how long will a typical 65-year-old live? When the TIAA Institute and Global Financial Literacy Excellence Center asked that question as part of their most recent Personal Finance Index survey, 35% of respondents underestimated the answer and another 24% admitted they did not know. Only 32% knew the correct answer: age 84 for men and age 87 for women.

Similarly, only about one-third knew the likelihood that a 65-year-old would live until age 90: 30% for men and 40% for women.

It’s a classic case of good news/bad news. The good news: People can expect to live longer than they think. The bad news: Because of this gap in "longevity literacy," they may not be financially prepared for a long life span. For people still in the workforce, that can mean not saving enough or retiring too soon. For retirees, that can mean not addressing the need for long-term care.

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In their study, TIAA and GFLEC pinpointed other gaps in what they called retirement fluency. On average, only about 40% of those surveyed correctly answered five retirement-related questions covering such topics as Social Security benefits and Medicare coverage. For example, only 30% knew that, on average, Medicare and other government programs cover about two-thirds of an individual’s health care expenses.

The prospect of facing potentially 30-plus years in retirement should be a wake-up call, says Kourtney Gibson, CEO of Retirement Solutions at TIAA. Younger workers should start saving early to "embrace the power of compounding," she says, and mid-career professionals should consider "gradually shifting a portion of their retirement savings toward guaranteed income."

For retirees, the issue is more immediate: "The longer you live, the greater your odds of needing care," says Douglas Ornstein, director, TIAA Wealth Management.

A retirement and longevity preparation gap

Statistically, more than half of Americans turning 65 are projected to develop a disability serious enough to require long-term-care services and support, ranging from assistance with activities of daily living to home health care to assisted living.

Yet "many retirees remain unprepared for potential long-term-care needs," concludes the Spending in Retirement study from the Employee Benefit Research Institute. When asked specifically to pinpoint which actions they have taken to plan for their own needs as they age, 51% of respondents said they had not taken any actions.

Most likely to have taken steps are those with a disability, current caregivers and those who anticipate they will become a caregiver. "Retirees with direct personal experience are much more attuned to what their own long-term-care needs will be," says Bridget Bearden, research and development strategist with EBRI.

Among Americans in general, there seems to be a misconception about who will pay for those needs. In EBRI’s Employee Long-Term Care survey, 43% of respondents expected that Medicare would cover those costs and 29% thought that Medicaid would pay for them.

But Medicare does not cover comprehensive long-term care, and Medicaid becomes available only after personal assets are depleted. The result, says Bearden, is that "many retirees remain unprepared, both financially and psychologically."

One way to start, she says, is by "taking small steps," such as talking to family members, health care providers and friends who have experience with caregiving, looking into what local services might be available, or making modifications to your home.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.