Living longer, running short: The retirement readiness gap is widening

Key points:

• • 92% of current retirees say Americans underestimate how much money retirement requires — and the data proves them right.
• • Extending retirement by just five years — from 30 to 35 years — raises the risk of depleting savings by 41%, yet most workers still plan for the wrong timeline.
• • Phased retirement and encore careers are emerging as both a financial buffer and a cultural shift.

May 2026 — Northwestern Mutual has put a number on the longevity retirement readiness crisis. Americans believe they need $1.46 million to retire comfortably — a figure that climbed more than 15% in a single year, yet the average retiree today holds just $288,700. The longevity gap is widening, and financial institutions, employers, and healthcare systems can no longer afford to ignore it.

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“People are afraid of running out of money in retirement and do not know how much they can spend month to month,” William Hunt, CEO of GBU Life, told Invest: Pittsburgh. 

Forty-eight percent of Americans believe it is somewhat or very likely they will outlive their savings. Goldman Sachs Asset Management projects the total costs for the average retiree will reach $2.57 million by 2043, up from $1.75 million in 2033, driven by rising annual expenditures and a longer average retirement period. Average annual household spending for adults 65 and older has grown from roughly $60,000 in 2000 to $122,000 in 2023, a compounding burden that most retirement projections still fail to capture.

The miscalculation is structural. Only 1 in 3 Americans can accurately estimate how long a 65-year-old will typically live, according to the TIAA Institute. Workers who underestimate longevity save less, plan less, and arrive at retirement with a horizon set for the wrong finish line. Even a modest increase in retirement duration can significantly strain savings. Research shows that extending retirement from 30 to 35 years raises depletion risk by 41% under historical market return scenarios.Under lower projected portfolio returns, that same five-year extension pushes the risk of running out of money up by more than 300%.

The savings gap widens

More than a quarter of current retirees report no retirement savings at all, and 92% say other Americans underestimate what retirement actually costs. A 2026 MetLife study found that 62% of pre-retirees underestimated the amount they needed to save, while 61% overestimated how long their savings would last. Pre-retirees now expect their savings to last just 15 years after leaving the workforce — down from 19 years four years ago — even as the average retirement stretches to 25 or 30 years.

Healthcare costs accelerate the damage, as Medicare does not cover everything. Supplemental insurance, deductibles, copays, and long-term care costs can quickly compound, creating additional financial pressure in retirement — costs that most savers do not model when building their plans. According to the National Council on Aging, roughly 80% of households with adults 60 and older lack the resources to cover long-term care costs or weather a financial emergency, a figure that signals a readiness gap far wider than savings alone.

In an interview with Invest: Tampa Bay, Scott Perry, CEO of AmeriLife, said he sees four distinct anxieties driving clients through the door. He pointed to healthcare coverage in retirement, whether accumulated assets will be sufficient, how to de-risk and convert savings into reliable income, and how to protect what is left for the next generation as the primary issues clients are trying to navigate, particularly later in life. “Many people were more aggressive investors earlier in life because they had time to recover from losses,” he said. “Later in life, that changes. They want to de-risk their portfolio and create guaranteed income streams that can support them over a longer retirement horizon.”

Goldman Sachs’ 2025 Retirement Survey found that working Americans target an average income replacement rate of just 57% in retirement. Actual retirees report receiving about 60% of their pre-retirement income, and 71% say they are satisfied with that level, though lower replacement rates may become more difficult to sustain when costs rise unexpectedly or longevity extends.

Firms retool for longer lives

Financial institutions are beginning to respond with structural redesign rather than incremental adjustments. Goldman Sachs models a blended income strategy that integrates protected lifetime income with traditional investment withdrawals, projecting a roughly 23% increase in retirement income compared with relying solely on portfolio drawdowns. The protected component absorbs the longevity tail, while the investment layer maintains growth exposure. Retirement plans incorporating annuity based income features have grown by 45% since 2023, while lifetime income illustrations have become standard on plan statements.

At the client level, the firms gaining ground are those that center planning — not products — as the primary relationship. In an interview with Invest: Tampa Bay, Jack Heiss, market director for Tampa at UBS, describes how that works in practice. “Much of our business is built around a fee-based model that focuses on the entire client relationship,” he said. “That approach starts with comprehensive planning.” From that foundation, advisors collaborate with estate planning attorneys, trust officers, and portfolio managers to build strategies aligned with each client’s specific needs — whether retirement income, wealth transfer, or multigenerational support. “Everything flows from that planning foundation,” Heiss said.

Policy is also shifting. The SECURE Act 2.0, enacted in 2022, continues its phased implementation through 2026, with provisions mandating automatic enrollment in new 401(k) plans and expanded catch-up contributions for workers aged 60 to 63. By 2026, over 20 U.S. states are expected to mandate employer access to retirement savings plans, addressing a coverage gap that has left millions of workers, particularly at small businesses, without any structured savings vehicle.

Employers are also rethinking the shape of work itself. Four in 10 Americans say they plan to work during their retirement years, with that share rising to 50% among millennials and Gen Xers. The motivation is not purely financial. The leading reason people say they plan to work in retirement is to continue feeling useful and stimulated, a finding that aligns with broader research on purpose and longevity.

Phased retirement programs — reduced hours, consulting arrangements, and encore careers in mission-driven fields — are the operational response. A 2024 survey by WTW found that 15% of U.S. workers over 50 are already phasing into retirement, while 19% say they would like to do so in the future, with many doing so informally because formal employer programs remain scarce.

Technology is accelerating the shift from generic retirement guidance to precision planning. AI-driven tools are enabling plan participants to simulate income and longevity scenarios with greater accuracy, moving beyond rule-of-thumb benchmarks to offer tailored projections based on individual financial situations, risk tolerance, and lifestyle expectations. By 2026, 3 out of 4 employers plan to add financial wellness programs, signaling that longevity retirement readiness carries implications for workforce planning, employee well-being, and financial security.

Longevity retirement readiness extends beyond accumulating capital, according to the Fidelity International Longevity Revolution report. It requires confidence that savings will last, that people can remain active and connected, and that retirement delivers genuine purpose — not simply the absence of work. Financial institutions that frame their offer around that broader definition may be better positioned to build long-term client relationships.

A coordinated ecosystem spanning healthcare, employers, financial institutions, community organizations, and government agencies is increasingly viewed as necessary to address the challenges of longer life expectancy, according to a report from the Milken Institute. The research frames longevity as a broader systemic challenge that extends beyond individual responsibility. The executives who act on that framing first by building products, programs, and partnerships across those domains will define the competitive landscape for the next two decades. 

Americans are living longer, and institutions across sectors are being forced to determine how they will respond to that reality while continuing to serve an aging population effectively.

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