Abigail Hurwitz is a Senior Lecturer (Assistant Professor) at the department of Environmental Economics and Management at the Hebrew University of Jerusalem. Olivia S. Mitchell is the International Foundation of Employee Benefit Plans Professor of Business Economics/Policy and Insurance/Risk Management at The Wharton School, University of Pennsylvania. Orly Sade is the dean of the Hebrew University Business school, The Albertson-Waltuch Chair in Business Administration and Professor of Finance, Hebrew University Business School. Hebrew University, Jerusalem, Israel.
Understanding how long people think they will live can provide insight into how they make financial decisions, particularly regarding retirement savings and spending habits. In our recent study for the Pension Research Council, we shed light on how subjective longevity beliefs vary across people in different racial and ethnic subgroups, as well as how these perceptions influence their financial behavior. By subjective longevity beliefs, we refer to individuals’ expectations or perceptions about how long they think they will live.
Our research draws on surveys conducted at the onset of the COVID-19 epidemic in 2020, as well as a follow-up survey in 2021. Our goal was to explore peoples’ subjective survival expectations and to show how they changed during the pandemic, as well as to assess whether these changes reflected the differential impact of the disease across members of different racial and ethnic groups.
Key Research Findings
Black and Hispanic Americans Tend to Overestimate Their Longevity: One of the most striking findings of our research is that members of these two groups tend to overestimate their survival probabilities, compared to actuarial life tables. Despite documented disparities in actual life expectancies, Blacks consistently report higher subjective survival probabilities than do Whites. This discrepancy may have significant implications for financial planning and could imply that members of these groups would be more likely than Whites to be interested in retirement saving and annuitization in later life.
It is also interesting that Asian Americans, who statistically have the highest life expectancy in the US, are also very optimistic regarding their longevity, compared to objective life tables.
The Pandemic’s Impact on Longevity Perceptions: The large mortality impact of COVID-19 on minority people in the US might have been anticipated to have had a large impact on subjective longevity estimates for members of these groups. Nevertheless, our study documented that changes in self-perceived survival probabilities were modest, and they did not differ significantly by racial and ethnic group membership. This suggests that many individuals may not have fully internalized the pandemic’s risk of mortality when they responded to our survey about their life expectancy.
The Influence of Longevity Perceptions on Financial Behavior: We also studied how subjective longevity beliefs shaped financial decision-making, particularly regarding retirement savings and annuitization choices. Interestingly, we found that Black respondents who underestimated their life expectancy were more likely to recommend both more savings and more annuitization.
Implications for Retirement Planning
The Need for Improved Financial Education: Financial literacy programs have long been recommended to redress differences in financial wellbeing among Black and Hispanic people. Our work also highlights the importance of correcting biased perceptions of longevity for these individuals. Ensuring that people have a realistic understanding of their life expectancy can help them make better-informed decisions about saving for retirement as well as spending patterns in retirement.
Personalized Retirement Planning: In view of our documented differences in longevity perceptions, we conclude that financial advisors would do well to tailor retirement planning advice depending on the racial and ethnic composition of their advisees. Programs seeking to enhance retiree wellbeing could also improve outcomes if personalized approaches were to account for racial and ethnic differences in longevity beliefs. Moreover, employer efforts to improve employees’ financial security via workplace-based financial wellness courses could also benefit from insights provided by our research.
Conclusion
This research adds to our understanding of how longevity perceptions differ across racial and ethnic groups and how these beliefs shape financial behavior. Addressing biases in longevity expectations through targeted financial education and personalized retirement planning could help people in minority subgroups make better financial choices for their later years.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.
