What Record Life Expectancy Means for Retirement

A U.S. resident born in 2024 has an average life expectancy of 79, up more than a half-year from 2023, according to a report from the National Center for Health Statistics. Such increasing longevity is becoming a critical—but often underestimated—planning risk in retirement projections.

A 65-year-old man can currently expect to live to about 84, while a 65-year-old woman is expected to live to about 86. For plan sponsors and advisers, that translates into a potential distribution horizon of at least 20 to 30 years. Without incorporating realistic longevity assumptions into glide path design, withdrawal strategies and income solutions, participants face a heightened risk of outliving their savings.

“Underestimating the number of years you will live in retirement is like planning a cross-country road trip with only half a tank of gas in the car,” said Kourtney Gibson, CEO of retirement solutions at TIAA, in a statement. “You need to save enough money for the years you may live in retirement, not just the years you think you’ll live.”

Research from the TIAA Institute titled “Retired for How Long?” highlighted this serious gap in “longevity literacy.” For example, only 32% of surveyed respondents correctly answered a multiple-choice question about a 65-year-old’s life expectancy, while 35% underestimated it.

The report also found that underestimating longevity spilled into retirement savings. Only half of surveyed workers who expected to live fewer than 10 years in retirement were saving on a regular basis, compared with more than 70% of those who anticipated at least 20 years of retirement. Similarly, 57% of Baby Boomer respondents planned to retire in their 60s, and 46% believed they would live to at least 90 years—but only 9% were planning for such a long timeline.

“This disconnect is creating an unprecedented crisis for retirement security,” Gibson said in a statement.

Do Not Delay Retirement Planning

Compound interest can be a powerful wealth-building tool, but it requires time for earnings to generate their own earnings, according to Gibson. 

She gave the example of two hypothetical savers—Carolina and Andy—who both save $30,000 over 20 years with a 6% annual return. Carolina starts at age 25 and stops at 44, while Andy starts at 45 and stops at 64. By age 65, Carolina has $160,300, while Andy has only $49,970, because Carolina’s money enjoyed 40 years of compound growth, compared with Andy’s 20.

While Generation Z can fully harness the power of compound interest, the TIAA report found that only 20% of Gen Z respondents were saving for retirement and that 35% said they did not know where to begin.

Regardless of age, Gibson said all workers need to factor time into their retirement planning. She encouraged younger savers to start building retirement accounts early and to take full advantage of employer-matching contributions.

Savers in their 40s and 50s need to stress-test their retirement plan against a timeline of 20 years, 30 years or even longer, according to Gibson, to make sure they can fund potential longevity. She said those approaching retirement should consider shifting some assets toward guaranteed income streams to create a financial foundation for basic living expenses, on top of Social Security, which is designed to replace approximately 40% of annual pre-retirement earnings.

Gibson cited research showing retirees with annuitized income report higher happiness levels and reduced financial stress.

“We insure our homes, cars, and health. Why wouldn’t we insure against running out of money in retirement?” Gibson said in a statement. “You gain both financial stability and peace of mind, regardless of market volatility or how long your retirement actually lasts.”