While the upside to using the correct life expectancy number in retirement planning may be to take some of the pressure off the total amount to be saved, the result may seem a bit grim. Plan Sponsors may find that including information about lifestyle changes that can increase life expectancy (like diet and exercise or decreasing alcohol consumption) could offset the gruesomely depressing subject matter.
Since 2016, the Centers for Disease Control ("CDC") have dropped the average life expectancy each year. The trend began in 2014 when life expectancy was set to 78.9 years. Since then, the figure has dropped minimally, but significantly, each year. And importantly, the average life expectancy isn't changing as much for women as it is for men, with women now reaching 81.1 years to men's 76.1 years. The only other time there was a significant drop in life expectancy was nearly 50 years ago in 1963.
While there may be several causes for the drop in life expectancy, including an ever-increasing number of drug-related overdose deaths. Infant mortality rates, which are slightly controversial based on disparate racial impact, are still higher in the United States than in other countries. While the number had sharply declined over the last few decades, the rate of decrease seems to have stalled in the last few years.
The drop in life expectancy may reveal more than you think. Oddly, life expectancy also follows racial lines. According to a recent report Hispanics in the United States have a significantly higher life expectancy of 81.8 years, notably higher than Non-Hispanic whites, at 78.5 years and non-Hispanic African-Americans at 74.8 years. That's 6 years of additional retirement life for Hispanics than African-Americans.
Apparently, according to the Robert Wood Johnson Foundation, where you live also may impact life expectancy. That Foundation found that folks in the South tended to have shorter life expectancies than those in the North.
Employees who use standard retirement calculators may find that they are relying too heavily on overgeneralized information. For example, the six-year difference in life expectancy between Hispanic Americans and Non-Hispanic African-Americans could amount to more than $300,000 in the total amount that might need to be saved for retirement.
Plan Sponsors who want to provide educational materials to employees on this topic may find themselves in a pickle. If life expectancy has an enormous amount of impact on retirement readiness, but is so heavily impacted by race and geographic location, among host of other variables, how can any generic information be specific enough?
First, the most important thing may be for Plan Sponsors to consider the fact that by providing information about the decrease life expectancy may provide employees with information about the disparities in life expectancy we've discussed above.
Second, by providing information about life expectancy and any changes to the rates, employees can also question how they've calculated their own life expectancy: did they merely take an online calculator's variable? Did they look to members of their family and come up with a more specific number? Providing information sessions on how to consult actuarial life tables and how to apply individual habits and genetics could be of great use to employees in choosing how to plan their retirement.
Understanding life expectancy might also help some employees who are too overwhelmed to start saving for retirement. For example, if an employee feels like they have an insurmountable backlog of retirement savings to catch up on because in their retirement readiness calculations they've assumed they will live to 95 (a number picked randomly or suggested from the internet) they may have significantly less to catch up on if they can see that their life expectancy might be 20 years less (at an amount of $50,000 per year, that could be as much as $1 million less to save).
Plan Sponsors can also assist employees by providing information sessions on life expectancy calculators. Those calculators incorporate differences like diet, exercise and family history into actuarial tables. Providing information on this touchy subject could be as easy as providing news articles on the three year decline or providing a variety of life expectancy calculators to employees via the your company's benefits site.
While the upside to using the correct life expectancy number in retirement planning may be to take some of the pressure off the total amount to be saved, the result may seem a bit grim. Plan Sponsors may find that including information about lifestyle changes that can increase life expectancy (like diet and exercise or decreasing alcohol consumption) could offset the gruesomely depressing subject.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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