Four out of five older Americans (ages 50-75) failed a retirement literacy quiz issued by the American College of Financial Services. The average score? 42%.
The results are sad, unfortunate, and unsurprising. Americans as a whole are not financially literate, but it is especially important for retirees and pre-retirees (the 50-75 year-olds who took this survey) to understand retirement basics in order to make informed choices and avoid making big money mistakes.
Some key results from the article on retirement income:
- More than half underestimate the life expectancy of a 65-year-old man, suggesting that many do not realize how long their assets may have to last.
- Only 32% know that $4,000 is the most they can afford to “safely” withdraw per year from a $100,000 retirement account, suggesting most do not know how to determine a prudent withdrawal rate.
- Only 35% know that a negative single year return in a retirement portfolio has the most significant impact on long-term retirement security if it happens at the year of retirement, suggesting a fundamental lack of knowledge about investment risk in the pre-retirement and retirement period.
And, while a majority reported being at least moderately knowledgeable about investments, many basics are sorely lacking:
- Just 26% understand that the value of bonds and bond funds falls as interest rates rise.
- Just 28% know that actively managed mutual funds have higher fees than ETFs.
- Only 18% know that B-rated corporate bonds have higher yield than AAA corporate bonds or treasury bonds.
Long-Term Care, COVID-19 (emergency) preparedness, and retirement confidence all yielded similarly poor results. The interesting takeaway is not that Americans are financially illiterate—that’s been true for decades—but rather how many different areas of financial planning require understanding in order to produce a viable retirement plan. The truth is that without help, it will not get done. And, unfortunately, most people who can help with this are salespeople looking to make a big commission.
It’s time for a better way. Let’s work together to give your employees access to unbiased coaching, assistance, and resources to help create better outcomes.