Many seniors don’t understand the basics of financing retirement, according to recent research published in the Journal of Financial Planning.
The research looked at data from the Retirement Income Literacy Survey, a 38-question quiz created by the American College of Financial Services.
You can take the latest version of the multiple-choice survey yourself on the college’s website. Perhaps test yourself in honor of April being Financial Literacy Month.
The survey covers the following areas of retirement planning:
- Distribution strategies
- Tax efficiency
- Long-term care planning
- Social Security
- Housing options
- Health care
- Insurance products
- Qualified retirement plans
- Optimal retirement ages
- Individual retirement accounts (IRAs)
The survey questions were originally developed based on the input of more than 20 retirement income planning researchers and practitioners, according to the journal.
Respondents were polled for the original survey in 2014, and new respondents were polled after the survey was updated in 2017. But retirement-age Americans — those ages 60 to 75 — scored just as low the second time around.
As the Journal of Financial Planning put it:
“Some areas of knowledge showed slight improvement; however, only 26 percent of retirement-age Americans passed the literacy quiz with a score of 60 percent or higher, indicating a lack of retirement income planning knowledge.”
The breakdown of those passing scores is:
- Less than 1 percent of survey respondents scored between 91 and 100 percent.
- About 5 percent scored between 81 and 90 percent.
- 8 percent scored between 71 and 80 percent.
- 13 percent scored between 61 and 70 percent.
Men fared better than women: 35 percent of men passed compared with only 18 percent of women.
People with more education also fared better than those with less education: 40 percent of respondents with graduate degrees passed, compared with only 9 percent of respondents without a college degree.
Survey participants were more capable of answering basic financial literacy questions correctly compared with questions specific to retirement. For example, 88 percent correctly answered a question about how inflation works.
Medicare was the best-understood topic in the survey, while annuities were the least-understood. You can learn more about both in our stories like “7 Facts You Need to Know About Medicare” and “2-Minute Money Manager: Should I Buy an Annuity?”
Many respondents believed they were much more knowledgeable than they actually turned out to be. According to the paper:
“When asked: How knowledgeable would you say you are about retirement income planning, 88 percent responded they were moderately to extremely knowledgeable. However, of this same group, only 28.6 percent passed the literacy quiz with a score of 60 percent or higher.”
Do you consider yourself knowledgeable about retirement? Share your score from the quiz over on our Facebook page.