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April 26, 2024 at 04:11 PM
This is the latest in a series of columns about Social Security and retirement income planning.
As a reporter whose work has focused almost exclusively on the topic of retirement planning for more than a decade now, I pride myself on having built up a solid foundation of knowledge about the big financial and behavioral complexities that define life after work.
If my experience has taught me anything, however, it is that there is always something more to learn about retirement, and I was reminded of that fact yet again this week when I put my knowledge to the test through a retirement income literacy quiz developed by a team of researchers at the American College of Financial Services.
Though I did manage to outperform the average respondent’s score by a healthy margin, I nonetheless found myself getting tripped up in a few areas pertaining to some nuanced topics, particularly cash value life insurance and the intricacies of Medicaid. The experience got me thinking: How would our readers do on the 38-question quiz, which asks about everything from annuity payout rates to mutual fund fees?
For context, just one in five Americans earned a passing grade on the quiz when the researchers ran a recent experiment that saw thousands of randomized respondents give it a go. Even more discouraging, according to report authors Chet Bennetts, Michael Finke, Eric Ludwig, Steve Parrish and Kaylee Ranck, was the average score of just 31%.
Some positive signs are to be found in the data, according to the researchers, such as the fact that Americans who are older and nearer retirement seem to have at least slightly better knowledge about key financial concepts related to retirement. There’s also good indication that people have a decent sense of their own knowledge levels, and that higher levels of educational and wealth attainment lead to higher levels of “retirement literacy.”
The researchers theorize that those who are wealthier and further along in their careers more commonly work with advisors, and they simply have more lived financial experience to rely upon when answering tricky quiz questions. But overall, the findings suggest that the financial industry’s education efforts seem to have fallen flat when it comes to the topic of spending in retirement.
As such, the researchers said their quiz can be a powerful tool in the hands of any advisor who serves clients facing the “decumulation challenge.”
Beyond testing their own knowledge on a range of important topics, advisors can use the results to pinpoint their clients’ income planning blind spots and create tailored educational resources. They can also foster some healthy office competition by challenging their colleagues and comparing results.
There’s Nothing Simple About Retirement
A review of the range of the quiz questions reveals just how complex the retirement planning topic is.
The quiz starts with a question about safe withdrawal rates for a 50-50 portfolio of bonds and stocks that must last for 30 years with normal assumed future returns before moving on to address such topics as sequence of returns risk, inflation hedging and the age at which required minimum distributions from tax-qualified retirement accounts must begin.
