Getting your Trinity Audio player ready...

Authors: Tonya Manning Nathan Trotman

Retirement plans can easily be misunderstood and miscalculated. Not because of market volatility or inflation, but because they're built on a dangerous misconception: that people die exactly when statistics predict they will. Many of us will live much longer than average, and thus our retirement years require meticulous planning.

If your organization and employees are working around that median figure, you're essentially gambling with your future financial wellbeing. Basing retirement on an individual's life expectancy is a mistake — to properly prepare for retirement, plans should factor in the potential number of years in retirement or longevity, a concept that actuaries use.

By addressing longevity, Gallagher Fiduciary Advisors, LLC (GFA) provides clients with comprehensive strategies to enhance their financial wellbeing and offer a competitive advantage in retirement planning.

“
The 20s are the new 50s. Don't wait until it's too late to plan for retirement. Employers, for their part, must encourage workers to save early and focus on the long term.
Tonya Manning, US Defined Benefit practice leader and chief actuary, Gallagher

What's the difference between longevity and life expectancy, and what happens when the latter is ignored?

Savings capacity and culture

Life expectancy isn't an end date or a date to mark on your calendar. Few people die at 78.4, the most recent average estimated life expectancy in the US.*

The transition from wealth accumulation to then making sure that this can generate a sustainable retirement income is a critical one. But it is at this juncture where many retirement plans fail — because they do not adequately address the risks of longevity.

The challenge can become even more complex when considering that retirement income may need to last decades longer than traditional planning models have forecast. Employer-matched contributions alone won't provide sufficient income for many employees.

For one client, Gallagher demonstrated how the probability variations played out for different demographic groups, pay levels, ages and scenarios. The potential gaps were striking — many employees would fall short of their retirement income goals.

"It was a reality check that caused the organization to rethink not just their communication strategy but their overall approach to helping employees better understand the savings capacity and culture needed to help ensure long-term financial wellbeing," says Tonya Manning, US Defined Benefit practice leader and chief actuary, Gallagher.

The misunderstanding of a long life: life expectancy vs. longevity

While the two terms appear similar, their meanings are fundamentally different. which is critical to making informed retirement planning decisions.

Life expectancy is an estimate of how long you're likely to live. Longevity, on the other hand, refers to the actual age to which you could live. Longevity can be far greater than average life expectancy, and flawed planning could mean insufficient income to support the desired quality of life after retirement.

You can outlive life expectancy by five, 10, 15 or more years, but if you haven't planned accordingly, you could find yourself with a significant shortfall. To attain financial confidence in your retirement years, there needs to be a mindset shift — from how long averages predict we'll live, to how long we could live.

Gallagher's 2024 US Workforce Trends Report: Financial Wellbeing found that three out of five people lack a plan to secure their financial wellbeing. Manning said, "Individuals need help to understand when they need to cash out their pension benefit or take out an annuity. This all stems from the confusion surrounding longevity and life expectancy."

Similar longevity planning challenges exist around the world. Take pension schemes in the UK or superannuation programs in Australia. Or in the case of Brazil, which has a notable number of centenarians — many global pension funds aren't prepared for that.

Manning adds, "Organizations must provide a global perspective and risk management experience to help navigate both domestic and international regulatory landscapes while developing adaptable retirement strategies."

What impacts longevity?

Beyond traditional health metrics, longevity is influenced by several factors:

  • ZIP code: Geography can mean disparities in the availability of adequate healthcare or access to other resources, affecting health, wellness and longevity.
  • Proximity to quality medical care: Someone who lives in a major city typically has access to higher quality care than someone in a rural area.
  • Socio-economic variables: Employees with a high income are more likely to have more resources to help them maintain a healthy lifestyle and long life.
  • Family structure: People who live near family members or have children tend to be supported more as they age.

As Nathan Trotman, area executive vice president, Retirement at Gallagher Fiduciary Advisors, LLC, notes: "There is a common misconception that the market never goes down. But your investments can easily be eroded, which needs to be factored into retirement plans."

“
There's a common misconception that the market never goes down. But your investments can easily be eroded, so this needs to be factored into retirement plans.
Nathan Trotman, area executive vice president, Retirement, Gallagher Fiduciary Advisors, LLC

Smoothing the transition to retirement

Some workers approaching retirement age can have concerns not only about their financial future but about the shift in identity that can accompany the end of a career. The positive impact of helping mature workers feel confident about the financial and emotional changes that come with retirement extends to the organization as a whole, by creating opportunities for younger workers to advance in their careers.

GFA worked with a client that had a significant number of employees over age 50. With GFA's help, the organization provided support for this group that had a positive ripple effect through the organization:

  • Comprehensive education: Budgeting and debt management workshops help employees understand their own personal situations.
  • Long-term approach: Instead of expecting immediate retirement decisions, employees were better able to plan for their retirement.
  • Phased retirement solutions: Cutting back on work hours over time helped workers make a more gradual transition to retirement ― reducing stress and uncertainty.

Another organization invited former retirees to write about their experiences for the company newsletter. Using storytelling in this way had a powerful impact. "These personal, real-world insights helped employees feel more positive about the retirement process and its potential impact on their lifestyles and wellbeing. Their efforts helped to address the fear of the unknown," Trotman stressed.

Retirement planning fundamentals: 5 Recommendations

How can your organization help its employees understand and prepare for the financial and emotional aspects of retirement? Consider these five areas:

  • Understand your demographics. The messages you share with your workforce need to be tailored based on unique individual attributes. For example, we know that the sense of urgency for retirement planning changes as workers mature.
  • Meet employees where they are. Entry-level and longer-serving employees have different priorities. Effective retirement planning isn't a "one-size-fits-all" proposition — each person is at a different stage of their financial journey.
  • Keep on top of regulation. Monitor developments and communicate their potential implications to employees, so they can understand how policy changes might impact their retirement strategies.
  • Boost your communication. Fully leverage all the resources at your disposal, including those from third-party vendors, for your retirement planning communication efforts.
  • Adopt a holistic focus. Think about financial and organizational wellbeing in tandem. When employees feel less stressed about the financial implications of retirement, they'll be more committed to their work, which will lift productivity and performance.

Plan your retirement with confidence

To effectively navigate retirement planning, considered longevity risks.

Moving away from life expectancy to longevity planning will have a significant impact on both the financial confidence and emotional security of employees. Helping them plan for the long term and successfully transition into retirement and isn't just a benefits consideration — it's a strategic workforce planning imperative.

The financial wellbeing of your employees is crucial, not only for their long-term success but also for organizational resilience and longevity.

To learn more about our financial wellbeing and retirement planning solutions, contact a GFA consultant.

Author Information

Sources

*Sherry L., Murphy et al. "Mortality in the United States, 2023," National Center for Health Statistics, Dec 2024. PDF file.

Disclaimer

This material was created to provide information on the subjects covered, but should not be regarded as a complete analysis of these subjects. The information provided cannot take into account all the various factors that may affect your particular situation. The services of an appropriate professional should be sought regarding before acting upon any information or recommendation contained herein to discuss the suitability of the information/recommendation for your specific situation.

Investment advisory services are offered by Gallagher Fiduciary Advisors, LLC ("GFA"), an SEC registered investment advisor that provides retirement, investment advisory, discretionary and independent fiduciary services. Registration as an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. GFA is a limited liability company with Gallagher Benefit Services, Inc. as its single member. GFA may pay referral fees or other remuneration to employees of Arthur J. Gallagher & Co. or its affiliates or to independent contractors; such payments do not change our fee. Neither Arthur J. Gallagher & Co., GFA, their affiliates nor representatives provide accounting, legal or tax advice.

Securities offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Neither Osaic Wealth nor their affiliates provide accounting, legal or tax advice. GFA/Osaic CD (8114290)(exp062027)