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Joe Hornyak
Former editor of Benefits and Pensions Monitor and founder of Joe Hornyak Communications
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Life Expectancy Underestimated Significantly
People significantly underestimate their life expectancy – a feature Club Vita refers to as “longevity pessimism.” This longevity pessimism could significantly impact later-life financial well-being, it says. If people underestimate how long they will live, they expose themselves to the risks of undersaving and overspending in retirement. It also means they will undervalue guaranteed lifetime payment offerings such as annuity contracts or workplace defined benefit pensions. Its survey paper also says people who seem more conscientious or engaged with their health and retirement savings show lower levels of longevity pessimism. Those on average better at estimating their life expectancy included people who believe they are better financially prepared for retirement; people who believe they have healthier lifestyles; and people who use health trackers or who follow health-driven diets. It says this highlights a real divide between engaged and disengaged people. Those who are least financially prepared for retirement, also seem to be the people who are worst at estimating how long they will live in retirement. This could create a real polarizing effect for retirement planning, it says.
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Assistance For Retirees Suffers From Myths
In many cases, when members of defined contribution pension plans retire, “it is goodbye and good luck. But we need more than that,” says Neil Lloyd, western Canada wealth leader at Mercer. In the ‘Breaking through … to the other side … to assist retiree’ session at the ‘2022 Saskatchewan CPBI Regional Conference,’ he said this is due, in part, to some of the myths about retirees. To start, there is an assumption that retirees are all the same and a one-size-fits-all solution works for all of them. Another is that they are disengaged if they belonged to a target date fund. The reality is they grow more engaged as time goes by, he said. Studies on their?spending patterns in retirement shows it declines over time “so if inflation is around two per cent, you don’t actually need inflation protection. Another myth is they focus on their retirement income when, in fact, many focus on maintaining their asset base and live off the income it generates. This leaves plan sponsors with the impression they need to provide very comprehensive solutions. However, they don’t, he said. All they need to do is look at what retirees do and not what they say. This will help them understand why they are choosing what they are choosing. With retirement lasting a long time, many retirees are just looking for flexibility. In the end, these solutions don’t need to be complicated. They just have to help people make decisions which may require some education and advice, he said.
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