Life Expectancy and Retirement Planning

There is a strong connection between subjective life expectancy and retirement expectations, according to a new research paper.

The paper, “How Do Subjective Longevity Expectations Influence Retirement Plans?,” released by the Center for Retirement Research at Boston College, examines how subjective life expectancy influences planned retirement age and expectations of working at older ages. In general, the research reveals people who are more optimistic about reaching ages 75 or 85 are three to seven percentage points (or 8% to 24%) more likely to be planning to work into their 60s, and to work three or four months longer. These results were found to be consistent across all variables, though somewhat stronger for women.

In using a more-static model, the research shows 68% of those queried expect to live to at least the age of 75, and 47% expect to live until at least age 85. This model also reveals that subjective life expectancy is lowest among people whose same-sex parent died between ages 51 and 65.

The relationship between other variables and expected retirement age were found to be largely in line with related studies. Women, Hispanics, blue-collar workers, those with higher incomes and wealth, those with retiree health insurance and defined benefit pensions, and those in worse health expect to retire earlier. A retired spouse, especially if he or she has employer-sponsored health retiree insurance before and after retirement, is also associated with earlier retirement. Whites, the divorced, the higher educated, the uninsured, the self-employed, and those with a spouse who is unemployed or in poor health expect to retire later.

In using a more-dynamic model, the research indicates that the probability of working at ages 62 and 65 is relatively unchanged. If anything, the probabilities of working at 62 and 65 grow at a slower rate for those who expect to live the longest.

Overall, these findings emphasize the importance of longevity expectations in retirement planning and making the decision to retire, say the paper’s authors. The findings may also have important implications for modeling future labor force participation, the authors add.

The authors of the paper conclude, “With further health improvements, objective life expectancy continues to increase, but to extend one’s working life, subjective life expectancy needs to increase as well.” They recommend policy reforms aimed at encouraging longer work lives that effectively target communication on the gains in life expectancy.

An executive summary of the paper can be downloaded here. The full text of paper can be found here.