next issue no. 10: Participant engagement
Financial literacy remains a key area for research1
The TIAA Institute-GFLEC Personal Finance
Index continues to be a significant resource in
examining financial literacy levels among U.S.
adults and how that relates to their financial
well-being, including retirement readiness.
This year, for the first time, the study included
specific research on longevity literacy, i.e.,
knowledge of how long people tend to live in
retirement. The overall findings show us that
as with financial literacy, retirees with strong
longevity literacy were more likely to plan and
save for retirement while still working compared
to those with poor longevity literacy, and they
tend to experience better financial outcomes
in retirement.
To highlight how much of a challenge this can
be, according to the Society of Actuaries, for a
65-year-old couple, there is a 50% chance that
one of the two will live to be 93 years old, and
a further 25% chance that one will make it to
97. The data shows that one-in-three men, and
one-in-two women who are currently in their
mid-50s, can expect to live to be 90 years old.2
While overall life expectancy in the U.S. has
fallen from its peak, there is still a lengthy and
growing period of retirement that people need
to be prepared for. The covid pandemic has been
a significant driver of the negative trend in U.S.
life expectancy in 2022, pushing overall life
expectancy at birth to its lowest level since 1996.
The other primary driver has been the ongoing
opioid crisis. Life expectancy peaked at 79.9
years in 2020 for women in the U.S. and 74.2
years for men.3
The lack of retirement savings across
the general U.S. population and coming
retirement crisis have been a focus
for TIAA and Nuveen for some time,
and this new research highlights how
expanding education efforts to include
longevity literacy should be a major
focus for stakeholders.
The table shows that people with higher
levels of financial literacy are more
likely to be planning and saving for
retirement and to be confident about
their retirement income prospects.
The same holds true among those with
strong longevity literacy compared to
those with poor longevity literacy.
It is important that plan sponsors
have financial literacy programs as
part of their ongoing human resources
programs, to educate employees
to make sure that they are taking
advantage of all the options available
to them. Employees that are not
saving simply may not be aware of
the options available to them, such
as company matching, which could
have a significant benefit in building
retirement assets.
Regarding longevity literacy
specifically, the study found that over
half of U.S. adults either do not know or
underestimate how long people tend to
live in retirement. This is a significant
share of the population that may well
be underprepared for retirement.
Without a clear understanding of
how long retirement might last, they
may not be saving enough throughout
their careers, or they could spend their savings too quickly when they
reach retirement.
The study shows that women tend to
have better longevity literacy than
men—they are more likely to know
life expectancy at age 60 and less
likely to underestimate it compared
to men. This is very interesting
given that a consistent finding over
the first six years of the P-Fin Index
is that financial literacy among
women tends to lag that of men. This
dual reality should be factored into
retirement planning conversations
and communications with women,
particularly in light of our research showing that women have a gap
when it comes to retirement savings.
This savings difference is a result in
part from women having more gaps
from employment due to primary
caregiver responsibilities, but it’s those
responsibilities that lead in part to
their better longevity knowledge.
One area of the study focuses on
retirement readiness and longevity
literacy, and perhaps unsurprisingly,
finds that those who are more
proficient in longevity knowledge
are more future-focused and able
to better plan for retirement. There
is an interesting correlation that
could appear between those who are
most future-oriented and those with
strong longevity knowledge. This is
a potential audience segment that
should appreciate the great benefit
of securing lifetime income through
annuitization.
The study shows that financial literacy, knowledge
of longevity and retirement readiness are all
linked. This should not be a surprising outcome
for anyone with knowledge of the retirement
industry. Laying out the stark data that highlights
just how much work remains to be done in
educating people at all stages of their careers
on how long retirement savings might need to
last, how to save properly throughout a career,
and the interaction of savings, quality of life in
retirement and overall readiness is a valuable
study. With only a third of U.S. adults showing a
strong knowledge of longevity, more work must be
done to help participants prepare for the length
of retirement that they face, and to be prepared
when it does arrive.
How this ties into lifetime income
As we’ve written in prior editions of next, guiding
participants toward an understanding of how
to make sure that their retirement savings will
last is a key goal for plan sponsors. We believe
that one of the best ways to do this is through
the inclusion of a guaranteed lifetime income
product within a retirement plan that annuitizes
retirement assets into a continuous income
stream. Improving longevity literacy would likely
increase annuitization rates as we would not
expect the primary value of annuitization (a
consistent stream of income for as long
as you live) to resonate among those
with poor knowledge about how
long they could realistically live
in retirement.
The study further examines
financial outcomes in
retirement. 83% of
retirees with strong
longevity literacy have lifestyles that meet or exceed pre-retirement
expectations, compared with 63% of those with
weak literacy.
Educating participants about life expectancy is
key as it can help tie together the conversations
of just how long retirement could last, and how
to make sure that retirement assets are sufficient
to last through that period. These studies can
also help educate younger employees, for whom
retirement is a distant prospect, that the balance
of working life and retirement life is shifting
ever longer toward more years in retirement, so
savings need to be built early and often to allow
for a steady deaccumulation phase.
Our research into providing lifetime income
specifically identifies longevity risk as an area that
can be mitigated by the inclusion of an annuity
within retirement planning. We’d recommend
building financial literacy programs, and looking
to include guaranteed lifetime income within
a plan to ensure that participants can make
their savings last their retirement, no matter
how long it is.4
Endnotes
1 For full results of the report, please visit: tiaa.org/
2 SOA.org
3 CDC.gov
4 Any guarantees are backed by the claims-paying ability of the issuing company.
The views and opinions expressed are for informational and educational purposes
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