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How COVID Hit Americans’ Life Expectancy

Life expectancy in the U.S. declined last year, thanks mostly to COVID-19. Here are some factors investors should consider when it comes to retirement planning.

U.S. life expectancy dropped by 1.5 years in 2020, the largest single-year decline recorded since 1943, according to data released by the Centers for Disease Control and Prevention.

The average American life expectancy at birth was 77.3 years in 2020, down from 78.8 in 2019. Life expectancy at age 65 in 2020 was 18.8 years versus 19.6 years.

The COVID-19 pandemic accounted for most of the decline, while drug overdoses, homicides and chronic diseases also contributed. Hispanic men saw the steepest drop from any U.S. population, to 75.3 years.

>> Plus, from Robert Powell's Retirement Daily on TheStreet: Financial Perspectives on Aging and Retirement Across the Generations

Anna Rappaport, chair of the Society of Actuaries’ Committee on Post-Retirement Needs & Risks, views the drop in life expectancy as, most likely, a temporary change, and not a change in the general idea that life expectancy is decreasing over the long term.

According to the CDC, 80% of the excess deaths in 2020 are believed to be due to COVID-19.

Rappaport also noted that there’s a large gap in life expectancy based on economic status, and there is a gap based on race and ethnicity. “The groups in the lowest economic status group have the shortest life expectancy and they are likely the most affected by the drop,” she noted.

So, what are the financial and retirement planning implications of this development?

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For most of the people already in retirement, there’s no need to make any change in planning due to the life expectancy change, said Rappaport. “However, people who had COVID and have lasting effects of the disease, the so-called long-haulers, may wish to make some changes,” she said. “It is completely unknown what the long-term effects on them will be. They may need more medical care and more long-term care.”

Things for them to think about, said Rappaport, include whether their environment is limitation friendly, what kind of support system they have, and what they would do if they need extensive long-term care.

For the people not yet in retirement, Rappaport recommends the following: start with how you are considering life expectancy, its variability in your plan, and periodic improvements in life expectancy. Most likely won’t need to make any adjustments but it’s well worth the going through this exercise.

“If they are planning on a very long life expectancy and/or large improvements, they might want to cut back a little,” she said. “I would view the part of the change due to COVID as a one-time change, and one that is distributed very unevenly over the population. The other part of the change is also likely distributed unevenly, but that part is more likely to persist in my view.”

For the long haulers, Rappaport offered the same comment as for the retirees, but also an additional comment. “They should look at their disability coverage and what type of disability coverage they have on their continued retirement savings and contributions to defined contribution plans,” she said. “Although I know of no way to quantify it, I believe that there is an increased chance that they will be disabled before retirement. Many people do not have adequate disability coverage.”

In addition, for this group, there is an additional challenge. “Even if they do not become disabled, they may experience a drop in productivity and earnings,” said Rappaport. “Some jobs are very demanding and the culture of the workplace seems to me to be less tolerant for any job-related issue. Employers seem much more willing to terminate people than in the past. I think that the more that this group can accelerate their savings the better it is.”

And while it’s not directly linked to the life expectancy change, Rappaport said individuals need to be prepared for the possibility of flare-ups of the pandemic, long periods of problems in some countries, more mutations and possibly additional pandemics. “That points to me to the desirability of good disability coverage and saving more earlier,” she said. “Additionally, I see a need for flexibility.”

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