Testing methods to enhance longevity awareness

March 2021

Many people have only a vague notion of the concept of longevity risk, which in turn implies they are likely to save too little for retirement and have a low demand for longevity insurance products.

Summary

Retirees need to have some idea of how long they will survive to make informed decisions about drawing down retirement savings, claiming Social Security and pension benefits, and purchasing annuities. This is not a trivial task for many people due to low financial literacy, cognitive shortcomings, and behavioral biases. This paper seeks to understand how individuals estimate and then use subjective survival probabilities when making long-term financial decisions.

Key Insights

Providing longevity-risk information impacts people’s subjective survival probabilities, while simply describing average life expectancy does not.

Providing information on life expectancy or longevity significantly affects people’s annuitization decisions.

Merely prompting people to think about financial decisions changes their perceptions of subjective survival probabilities.

Methodology

To evaluate ways to enhance awareness of longevity risk while controlling for all other related variables, the authors developed, fielded, and analyzed a nationally representative online survey of Americans using the Prolific “crowd-working” platform.