There’s one crucial retirement finance question that is so difficult that most investors get it wrong even when you tell them the answer in advance. The question focuses on “life expectancy,” and needless to say answering it correctly is an essential prerequisite to good retirement planning. Underestimate how long you’re likely to live and you run the risk of outliving your money. If you overestimate it, in contrast, you run a good chance of leaving a lot of money on the table, so to speak—money that you could otherwise spend to enjoy your retirement.
Researchers have known for some time that most of us have a poor understanding of life expectancy. At the beginning of this year, for example, the TIAA Institute and George Washington University’s Global Financial Literacy Excellence Center (GFLEC) released results of a survey showing that two-thirds of U.S. adults were unable to answer basic questions such as “what is life expectancy among 60-year-old men in the U.S.” (I devoted a mid-January column to this survey.) That’s disheartening enough, since you can’t plan for a retirement if you don’t know how long it will last. But even more depressing are the results of follow up research that the TIAA Institute/GFLEC published two weeks ago. The researchers found that “longevity literacy” doesn’t improve even when you give away …
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