There’s an old joke about a man in the Wild West who’s about to be hanged for some crime he had committed. As he is standing on the scaffold, and the hangman is placing the noose around his neck, the criminal tells the crowd, “this is going to be a real lesson for me!”
One of the great problems with retirement planning is that by the time we realize the big mistakes we’ve made it’s usually too late to do anything else. Those who have (for example) spent too much while young, and who then end up old and broke, can always say in their dotage “this has been a real lesson to me,” but how exactly is that going to help?
Which brings us to the question of what we can do to try to prevent those financial regrets, by taking the right decisions when we still have time to change our actions. This isn’t simply a challenge for each of us individually, but also one of public policy. How can we do more to encourage more and better retirement planning?
Economists Abigail Hurwitz of the Hebrew University of Jerusalem and Olivia Mitchell of the University of Pennsylvania’s Wharton business school recently conducted a survey of older Americans on the subject of financial regret. They polled 1,764 Americans over the age of 50 through the University of Michigan’s ongoing Health and Retirement Survey. In the survey the average age was around 72.
What they found was interesting and useful.
Older Americans have five major financial regrets. One or two are quite surprising.And those regrets increase, dramatically, when people are encouraged to think more about how long they are likely to live.
Let’s start with the regrets. In the survey, the No. 1 financial regret of older Americans, shared by a thumping 57%, was not having saved more for their retirement during their working years. And while you can’t save more if you don’t earn more, those looking back with regret also blamed themselves for “not planning ahead” and “living day to day.”
Second on the list, surprisingly: Not buying long-term-care insurance, to pay for a nursing home or similar. This was a regret by 40% of those polled. There is a widespread misapprehension, especially among non-retirees, that Medicare will pay for your stay in a nursing home. It won’t (except in narrow and quite brief exceptions). You’ll have to pay for it yourself. Medicaid will step in, but only when you have run out of money.
Third on the list, 37% of older Americans regret not working longer, while 23% regret claiming Social Security too early—that is fifth on the list.
You can start claiming at 62, and many do. But if you wait you will get more each month. Someone waiting till they are 70 to start claiming will end up getting checks that are nearly 80% bigger.
The two most powerful levers you can pull to improve your retirement prospects, even as late as your 60s, is to keep working for longer and to delay taking Social Security as long as possible.
Meanwhile at No. 4, a remarkable 33% of older Americans regretted not investing more in a lifetime annuity or similar product that would produce a guaranteed income for life.
As part of the survey, the researchers also gave some of the subjects objective information about longevity, showing them mathematically the chances that they would live to a ripe old age. The result? Financial regrets went up. In some cases, they went up a lot. “Healthy people given objective longevity information were 43% more likely to express regret about not having saved more,” Hurwitz and Mitchell report. Those given the objective data about survival probabilities “expressed twice as much regret about not having purchased LTC insurance, and 2.4 times greater regret for not having purchased lifetime income payments,” they write.
So if a key to preventing financial regret in old age is to think more, and earlier, about how long we’re likely to live, reflect on this: According to CDC data, among those who make it to 65, half can expect to live into their mid 80s and a quarter into their 90s. About 10% can expect to live to their mid-90s. And those numbers are rising. Which is great news — unless you run out of money.