|by By Robert Powell, Special to USA TODAY|
It's hard enough planning for retirement, and now we have to add another two years of life to our calculations.
You read right: The average U.S. 65-year-old man is now expected to live to 86.6 years, up from 84.6 in 2000, according to new mortality estimates released by the
So, instead of saving for enough to last 21.4 years of retirement, you now have to build a nest large enough to last at least 23.8 years. That might not seem like a lot, but it could mean having to save upwards of
Given the revised life-expectancy estimates, we asked several experts the following questions.
What advice might you have for those saving for or living in retirement given the SOA's new mortality estimates?
For those for whom it applies, would it make sense for them to purchase single premium immediate annuities, deferred income annuities and the like as a way to manage longevity risk? And does gender play a role when thinking about these products?
John: "Everyone needs a significant amount of guaranteed lifetime income, whether the source is
Tacchino: "Gender does play a role when purchasing an annuity for more than the obvious reason. Qualified plan annuities must use unisex rates. The question arises regarding whether the potential for institutional pricing inside the plan will be better for a male client who would benefit from a sex-specific benefits outside the plan."
Inglis: "Purchasing insurance products has the significant advantage of pooling the longevity risk of all of the annuity customers — everyone doesn't have to save and invest in case they live to 100 when longevity risk is pooled. There is roughly a 25% financial savings that comes from pooling — people can just save just enough to cover their life expectancy. In addition, these products enable one to spend more and more confidently knowing that they aren't using up their money. Most of us get emotionally attached to our savings balances (naturally enough since we spend our whole working lives accumulating them). It's hard to get rid of them, even to buy a stream of lifetime income. If a retiree feels better keeping their pot of money, who is to say that that isn't the best solution for that person? On the other hand, evidence seems to suggest that people soon forget their emotional attachment to their savings once the annuity payments are coming in regularly."
For those for whom it applies, would it make sense for workers to take either a lump sum or annuity when they retire? Also, if a worker's employer is "de-risking" their defined benefit plan, which makes more sense: taking an annuity or a lump sum?
John: "While everyone's circumstances are different, workers should think very carefully before accepting a lump-sum payment instead of a guaranteed income stream. While the lump sum initially looks larger, in the long run, one is giving up lifetime security for a one-time payment that may not last as long as expected."
Inglis: "This is a complicated question and the 'right' answer for any one person is about more than just the financial aspect. We do need to respect how decisions make people feel also."
Any other thoughts about the subject?
John: "Longer lifespans emphasize the value of ongoing state efforts to establish state-sponsored retirement savings plans for small-business employees. If individuals don't have the opportunity to save to supplement their
Tacchino: "1. In a perfect world, the employer would make an advanced life deferred annuity (ALDA) an employee benefit. Legislative action would be needed to add ALDAs part of the cafeteria menu…and this needs to happen. 2. In a perfect world, spousal consent would be needed before a spouse could claim