Any Americans head into their retirement years with little rigor in their planning, and then they find themselves nursing a bundle of regrets. Those regrets are about not saving more earlier in life, not investing in long-term care or annuities, and dipping into their social security payments much too early.

How widespread are those regrets, and how can people plan more smartly for their retirement? That is the focus of a new paper titled “Financial Regret at Older Ages and Longevity Awareness” by Olivia S. Mitchell, Wharton professor of business economics and public policy, and Abigail Hurwitz, a professor in the department of environmental economics and management at Hebrew University of Jerusalem.

“There’s a widespread belief that many Americans have not saved enough for retirement,” Mitchell said in a recent episode of the Wharton Business Daily radio show that airs on SiriusXM. (Listen to the full podcast above.) “Despite that, they’re still retiring too early, and then they’re living a very long time. Our hypothesis was that people might be undersaving for retirement because they really don’t understand how likely they are to live a long time in retirement.” Mitchell is also executive director of Wharton’s Pension Research Council.

The research was based on a controlled randomized experiment conducted in 2020 on 1,764 respondents aged 50-plus. While earlier researchers explored people’s expressed regret for not saving more earlier in life, Mitchell and Hurwitz went further and covered other areas relating to the financial decisions people make. They examined whether older Americans also regret not insuring better, claiming benefits and quitting working too early, and becoming financially dependent on others.

The study found that 57% of participants regretted not saving more, 40% regretted not buying Long Term Care (LTC) insurance, 23% regretted that they did not delay claiming social security benefits, 33% regretted not having purchased lifetime income payments, 10% expressed regret for having to depend financially on others, and 37% regretted not working longer.

“People might be undersaving for retirement because they really don’t understand how likely they are to live a long time in retirement.”

— Olivia S. Mitchell

Preparing for Retirement

The study showed that providing people objective data on their likely longevity does alter their self-reported financial regret. Giving people information about objective survival probabilities more than doubled the regret expressed about not purchasing long-term care, and it also boosted their regret by 2.4 times for not purchasing lifetime income, the paper stated. “We conclude that information provision can be a potent, as well as cost-effective, method of alerting people to retirement risk,” the authors added.

A major reason older people end up with financial regret is because they had “inaccurate perceptions of longevity when they made key saving, benefit claiming, and insurance decisions,” the authors stated. An important policy takeaway is that providing people with objective longevity information when they make key financial decisions could help them avoid making mistakes and hence avoid regret in later life. The authors also concluded that older adults could use such information to revisit their purchase of long-term care insurance and annuities. “Better understanding of these risk management tools could substantially strengthen financial resilience in old age,” they added.

Mitchell said it is important to start saving young for a variety of reasons. “If people don’t start saving for retirement when they’re young, they don’t get to benefit from compound interest and the ability to diversify their investments across a whole variety of different assets,” she explained. “And then they’ll find it very difficult to retire at any reasonable age if they don’t start saving as young as possible. They need to save 20% or more of their income every year.”

“It’s very important to save as much as you can,” Mitchell continued. “What you don’t see, you won’t spend. Therefore, when your money is socked away in your retirement account, you will adjust your consumption naturally to the amount of money you see.”

“We must educate our children and grandchildren on budgeting, planning and uncertainty, and risk management, not only for the work-life, but for retirement as well.”

— Olivia S. Mitchell

Investing in Financial Literacy

According to Mitchell, there is “huge misinformation and financial illiteracy about the way Social Security works.” People have “only a vague idea” that the longer they wait to claim their Social Security benefits, the more they will receive – but the information that is available on that could be more helpful, she added. “The rulebook for Social Security is over 2,000 pages long. No wonder mere mortals cannot necessarily get it perfectly right. Not only do we need more financial literacy in the population, but we also need to slim down the rulebook and make it clearer and cleaner so that people can make the right decisions.”

One easy way to prepare people for retirement is to impart more financial literacy at the workplace. “Employers are increasingly finding it in their best interest to educate their employees, so that the employees don’t have debt collectors calling them at work, hounding them about credit cards and so on,” she said. “In terms of the longevity risk, giving people more information about how long they might live is absolutely essential to making the right decisions over your lifetime, so that when you get to be in your 60s, 70s, 80s or 90s, you have a decent nest egg to live on.”

In addition, Mitchell said it is important to prepare the younger generation – from high school or earlier – for the realities of retirement planning. “We must educate our children and grandchildren on budgeting, planning and uncertainty, and risk management, not only for the work-life, but for retirement as well.”

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