Financial Literacy for Your Employees – The Path to Financial Independence

Playing the Long Game – Longevity Literacy and the Connection to Better Retirement Planning

As retirement planning evolves, different ways to think about it continue to emerge. One example of this is the concept of longevity literacy, which has gained prominence in recent years.

Longevity literacy refers to one’s understanding of the implications of an increased life span in relation to retirement planning. According to a recent TIAA Institute report, 53% of American adults lack a basic understanding of how long people tend to live in retirement. In addition:

• Only 12% of U.S. adults have strong longevity literacy, meaning that they demonstrate an understanding of how long a 65-year-old today will live on average, as well as the likelihood of living to an advanced age versus the likelihood of dying relatively early.
• 31% have weak longevity literacy, meaning they demonstrate a complete lack of understanding of how life expectancy changes as one gets older, reaches retirement age and lives beyond that age.

The Rise of Longevity Literacy

The growing interest in longevity literacy is due to two key factors:

1. Over the past century, life expectancy has significantly risen in many parts of the world due to advancements in healthcare, technology and overall living conditions. Longer life spans have brought about the need for a deeper understanding of the financial implications of an extended retirement, particularly healthcare costs.
2. Traditional retirement income programs, such as pensions and social security, may not adequately support individuals through longer retirement periods. As a result, there’s a growing need for individuals to take more responsibility for their financial futures in retirement.

Longevity literacy can help promote better retirement planning in several ways:

• Extended retirement periods. Longevity literacy prompts individuals to consider how their savings and investments need to sustain them for a more extended period without a regular income. This consideration can help promote not only saving more in their employer-sponsored retirement plan, but starting to save earlier.
• Healthcare costs. Longevity literacy involves comprehending potential medical costs in retirement and planning for them accordingly (such as saving through a health savings account [HSA]).
• Asset management. Being aware of longevity encourages individuals to manage their assets more effectively, balancing risk and returns to ensure their resources last throughout retirement (or hiring a financial professional to help them do it).
• Income generation. Longevity literacy prompts individuals to explore various income-generating options investments or part-time work to supplement retirement income over a longer period.
• Social Security benefits. Longevity literacy helps ensure individuals optimize this source of income for extended retirement years. For example, the answer to the question of whether to take Social Security benefits early at age 62 versus waiting until full retirement age (or until age 70) becomes much clearer with stronger longevity literacy.