Most older Americans feel they are at least “moderately knowledgeable” on retirement income planning, but apparently that’s a misconception, as four in five fail to understand the basics of how to successfully plan for a financially secure retirement, according to a new study released by The American College of Financial Services.
The 2020 Retirement Income Literacy Survey discovered major gaps in savings knowledge.
The study of 1,500 Americans was done through online interviews between April 29 and May 18. Respondents were age 50 to 75 with at least $100,000 in household assets, not including their primary residence.
“With a troubled economy and an acceleration of early or forced retirements, consumer understanding of retirement principles is particularly important,” said Steve Parrish, adjunct professor of advanced planning and co-director of the College’s New York Life Center for Retirement Income, in a statement.
“Yet the survey demonstrates that retirement literacy remains troublingly low. Financial advisors should take heed of this situation and embrace the opportunity it provides to help Americans prepare for a successful retirement.”
In addition, eight in 10 people failed a 38-question online quiz on financial literacy, with an average score of just 42%.
The quiz showed other major knowledge gaps on how to sustain income in retirement:
- More than half underestimated the life expectancy of a 65-year-old man, which suggests many don’t know how long their assets may last.
- Only three in 10 have a plan in place for how to fund long-term care needs, and only 8% consider it very likely that they will ever experience a long-term care need — even though the reality is that 70% will.
- 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 manage a prudent withdrawal rate.
Nearly four in 10 consumers reported feeling highly prepared for the market downturn associated with the pandemic, and what made a difference in consumers’ perception of preparedness was having a formal, written retirement plan.
In fact, those with a written retirement plan (47% vs. 35% of those without) or a retirement income plan (43% vs. 22%) reported feeling more prepared to deal with the market downturn. However, only one in three respondents reported having a written plan.