There’s an old joke about a man in the Wild West who’s about to be hanged for a crime he committed. As he stands on the scaffolding and the executioner puts the noose around his neck, the criminal says to the crowd: “This is going to be a real lesson for me!”
One of the big problems with planning for retirement is that by the time we realize the big mistakes we’ve made, it’s usually too late to do anything else. Those who (for example) spent too much in their youth, and who end up old and broke, can always say in their drivel “that was a real lesson for me”, but how exactly is that going to help ?
Which brings us to the question of what we can do to try to avoid these financial regrets, by making the right decisions when we still have time to change our actions. This is not just a challenge for each of us individually, but also a public policy challenge. How can we do more to encourage better retirement planning?
Economists Abigail Hurwitz of the Hebrew University of Jerusalem and Olivia Mitchell of the Wharton School of Business at the University of Pennsylvania recently conducted a survey older Americans about financial regret. They surveyed 1,764 Americans over the age of 50 as part of the ongoing University of Michigan Health and Retirement Survey. In the survey, the average age was around 72 years old.
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 their lifespan.
Let’s start with the regrets. In the survey, the No. 1 financial regret of older Americans, shared by 57%, was not saving more for retirement during their working years. And while you can’t save more if you don’t earn more, those who look back with regret also blame themselves for “not planning ahead” and “living hand to mouth.”
Second on the list, surprisingly: don’t buy long-term care insurance, to pay for a nursing home or the like. This is a regret for 40% of respondents. There is a widespread misunderstanding, especially among non-retirees, that Medicare will pay for your stay in a nursing home. It will not (except in narrow and fairly brief exceptions). You will have to pay for it yourself. Medicaid will kick in, but only when you run out of money.
Third on the list, 37% of older Americans regret not working longer, while 23% regret claiming Social Security too soon, which is fifth on the list.
You can start claiming at age 62, and many do. But if you wait, you’ll get more every month. Someone who waits until they are 70 to start claiming will end up receiving checks almost 80% bigger.
The two most powerful levers you can use to improve your retirement prospects, even well into your 60s, are to keep working longer and delay taking Social Security as long as possible.
Meanwhile, at No. 4, a remarkable 33% of older Americans regretted not investing more in a life annuity or similar product that would produce guaranteed income for life.
As part of the survey, the researchers also gave some subjects objective information about longevity, mathematically showing them the chances that they would live to a ripe old age. The result? Financial regrets increased. In some cases, they have increased significantly. “Healthy people given objective information about longevity were 43% more likely to express regret for not saving more,” Hurwitz and Mitchell report. Those who received objective data on survival probabilities “expressed twice as much regret for not buying LTC insurance and 2.4 times as much regret for not buying life installments,” they write. .
So if a key to preventing financial regrets in old age is to think more and sooner about how long we’re likely to live, consider this: depending on CDC data, of those who reach the age of 65, half can expect to live into their mid-80s and a quarter into their 90s. About 10% can expect to live into their mid-90s. And those numbers are growing. Which is great news, unless you’re short on cash.