Retirement planning can be confusing. Figuring out the best time to claim Social Security benefits and the best type of Medicare coverage are challenging parts of your golden years.
Some aspects of retirement finances are especially perplexing. Recently, the American College of Financial Services conducted a survey of more than 3,700 Americans ages 50 to 75, quizzing them about 12 areas of retirement knowledge.
Overall, these older folks fared poorly. The average retirement income literacy score was 31%, which the American College notes is a failing grade.
Respondents were especially likely to struggle with the following topics.
1. Annuities
Survey respondents’ average literacy score for this topic: 12%
An annuity is a product that offers regular fixed payments to a recipient, guaranteeing a steady stream of income during retirement. In return for the regular payment, an annuity recipient typically must make a lump-sum payment up front.
Annuities come in different varieties, which is likely a big factor in why older folks find them so confusing. While financial experts are skeptical about some types of annuities, other types of annuities might play an important role in a retiree’s ability to spend their golden years in comfort.
If you are curious about annuities but not yet sure whether they are right for you, check out:
- “What You Must Know About Annuities“
- “The 5 Best Annuity Companies — and the Worst Ones — According to Consumers“
2. Investments
Survey respondents’ average literacy score for this topic: 22%
Smart investing is an essential component of building a large nest egg. So, it’s alarming that survey participants correctly answered less than one-quarter of the questions about the fundamentals of investing, despite having had a lifetime to learn them.
On this measure — and on every other one in the survey — respondents who work with financial advisors score higher on average than those who do not. If this sounds like good reason for you to consult a pro, be sure to find an advisor who is a fiduciary, which means they are obligated to put your best interests before their own. Free services such as SmartAsset make it easy to find vetted fiduciary advisors near you.
3. Long-term care
Survey respondents’ average literacy score for this topic: 24%
One of the thorniest aspects of retirement planning is deciding how to prepare for the possibility that you might need to finance long-term care services.
Someone who turns 65 today has an almost 70% chance of needing some type of long-term care services during their retirement, according to the federal government. But Medicare does not cover most long-term care services.
Long-term care insurance is available, but it tends to be expensive. Is it the right choice for you? Money Talks News founder Stacy Johnson has some thoughts in “Should I Buy Long-Term Care Insurance?”
Other retirement topics
Here is the average literacy score for other retirement topics in the survey:
- Life expectancy: 27%
- Retirement income: 29%
- Taxes: 30%
- Retirement plans: 31%
- Social Security: 33%
- Life insurance: 33%
- Medicare: 42%
- Housing: 46%
- Inflation: 47%
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