January 16, 2014
Parents’ Longevity Sways Plans to Retire
Penny DeFraties, a teacher, shared her reaction to a 2012 article that appeared on this blog:
The day I hit my minimum retirement age, I’m gone. I look forward to traveling, gardening, spending time with my grandkids, and volunteering at church, the American Red Cross and USO. My first husband died of a heart attack at 49-years-old, and my current husband lost his first wife to MS at 50-years-old.
The notion that life is short is a valid reason to retire – to travel or enjoy the grandchildren before it’s too late. And the academic literature clearly shows that the age at which people exit the labor force is related to how long they expect to live.
Building on this research, a new study nails down how we arrive at our personal estimates of our life expectancy and provides new insight into the critical retirement decision.
Using data for individuals between the ages of 50 and 61, economists Matt Rutledge and April Yanyuan Wu with the Center for Retirement Research (CRR) and Boston College doctoral candidate Mashfiqur Khan confirmed that individuals estimate their own life expectancy based in part on how long their parents lived. (Full disclosure: the CRR supports this blog.)
They went on to link this “subjective life expectancy” with when older workers plan to retire, as well as when they actually do retire.
Men, for example, think they have about a 7 out of 10 chance, on average, of living to age 75 – based on their parents’ experience – and so they make their plans to retire at 64. But men who think that they have half those odds of making it to 75 will plan to retire about four months earlier than their peers. Subjective life expectancy also influences women’s plans, and the magnitude of the impact is similar to men.
And should the sudden death of a parent cause longevity expectation to worsen, individuals reduce their planned retirement ages, the researchers found.
It could be a mistake, however, to assume we’ll be like our parents. Life expectancy has risen rapidly in recent decades, so people are living much longer. Consider a 65-year-old man today. He can expect to live to age 84, or about four years longer than men at that age could’ve expected to live three decades ago – in other words, the men of his father’s generation.
It makes financial sense for many older workers to stay in the labor force, so they can increase their monthly Social Security benefits and add to their retirement savings. But doing the right thing financially can be obscured by perceptions about life and death.
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government