Study: Older Adults Both Overestimate and Underestimate Risks They’ll Face in Retirement


New research shows that seniors don't think they'll live as long as statistics say they will. Photo: skynesher/Getty Images

Longevity may be the most important trend we’ve ever experienced. It’s driven by — and in turn, it affects — everything from health to housing, money to technology, lifestyle to social policy. There’s so much to be aware of — and it’s just getting started! Now you can keep up with all the latest developments in this weekly column.


I’ve posted many articles here about the “end of retirement” as we know it. More and more people are working past the traditional retirement age of 65 through a combination of need (being underfunded, worrying about outliving their money) and desire (want to stay active, relevant, in the game).

Mostly, the focus has been fairly narrow — the need for more cash set against some idea (accurate or hazy) of future needs, and how that need immediately affects a decision to stay in the workforce or retire.

But “retirement” obviously involves more than leaving or staying in the workforce right now. How good are seniors at understanding a wider horizon? How accurate are their judgments about risks and expectations?

A new study, reported here, offers some fascinating insights — both into the nature of what the total long-term outlook ought to look like and the degree to which older adults aren’t properly judging it.

The Centre for Retirement Research at Boston College analyzed survey data from the 2016 Health and Retirement Study conducted by the University of Michigan and the National Institute on Aging, and concluded that seniors both underestimate and overestimate some of the risks.

Study author Wenliang Hou identifies several risks that go into — or should go into — the equation, when evaluating the future:

  1. Health risk, or the risk of incurring unexpected health-care costs
  2. Longevity risk, or the risk of having a longer life expectancy than originally planned for
  3. Market risk, or the risk of experiencing market volatility
  4. Family risk, or the risk of facing additional costs as a result of divorce, the death of a spouse or your child (or children) getting sick or becoming unemployed

He then compared what the actual risks or probabilities were (based on a variety of statistical benchmarks) and how seniors perceived those risks or probabilities.

There were mismatches.

In general, respondents underestimated their own longevity, and thus, the length of their “retirement horizon.” For example, only 58 per cent of men and 64 per cent of women (both groups age 65 to 69) expected to live to 80, whereas the actual statistical probability was about 10 points higher.

They also underestimated the amount of health-care expenses they’d incur.

On the other hand, they overestimated the risk of future market fluctuations. In fact, they ranked market volatility as their greatest risk, offering a more negative evaluation of market performance than is shown by actual returns. From the article: “Hou attributes people’s negative outlook on the market to media coverage, which may focus more on short-term fluctuations in the market, over long-term returns.”

The money quote, from Hou’s report itself:

“The implications of this analysis are threefold. First, retirees do not have an accurate understanding of their true retirement risks. This finding highlights the importance of educating the public on the most significant sources of risk. Second, this analysis confirms the importance of longevity and market risk, underscoring the need for lifetime income either through Social Security or private sector annuities. Finally, long-term care is also a significant risk faced by retirees, but one they often underestimate. Better designed public programs and private products, possibly integrated with life annuities, could be encouraged to protect retirees with limited financial resources from this potentially catastrophic risk.”

We need to start paying more attention, not just to these factors but more importantly, to how they combine and interact. We need a wide-angle lens here if seniors are to meet the challenges and also maximize the opportunities that come with greater longevity.

David Cravit is a Vice-President at ZoomerMedia, and Chief Membership Officer of CARP. He is also the author of two books on the “reinvention” of aging. You can check out some of his other writing here.