What’s Your Retirement I.Q.?

Most Americans Fail Retirement Planning Literacy Quizzes…How Do You Compare?

Americans are woefully uninformed when it comes to retirement planning and more specifically when it comes to income planning, which is perhaps the most important planning you will do for your retirement.

At Your Retirement Advisor we believe that helping to educate individuals and families about retirement planning, investing, estate planning and other important financial topics is an integral part of helping people live the life they desire now and in retirement.

According to The American College of Financial services, roughly 75% of survey respondents failed a 38-question retirement planning quiz. In addition to the failure rate, only 6% of survey participants scored an A or B. According to David Littell, the Retirement Income Program Co-Director at The American College, “the results are alarming and a stark reminder of the need to be prepared for the decades in retirement when you are not earning a steady stream of income.”

The survey asked Americans aged 60-75 with at least $100,000 in investable a series of questions covering a variety of important retirement topics such as when is the best time to retire; how to maximize Social Security; employer-provided benefits, and how much can be safely withdrawn from a portfolio. All of these issues are deemed critical in the retirement planning process, particularly when planning income. The survey is similar to a 2014 survey in which the literacy results yielded similar results. The research surveyed a total of 1,244 Americans between February 16, 2017 and March 1, 2017. The literacy rate survey had a sampling error at the 95% confidence level of +/- 2.8%.

Although a majority of the respondents failed the quiz, many people perceive themselves to be much better educated on retirement planning topics than they really are. As an example, nearly two-thirds believed they were highly knowledgeable on the subject of retirement planning. Experts agree, this overconfidence could lead to retirement planning problems, as many believe they know more than they do when it comes to retirement planning.

Women faired more poorly than men (17% vs. 35% score) which is somewhat troubling for women as they face even greater retirement obstacles such a longevity and lower lifetime earnings. Those participants with higher levels of wealth and education fared better on the quiz. Littell noted that, “the drastic demographic differences are unsettling because all Americans – regardless of background – deserve to live out their retirement comfortably. This divide underscores how important it is for everyone to plan ahead.” These differences in affluence, education and literacy indicate the need for social programs to help all Americans have access to retirement education and planning resources.

In another recent retirement planning study by Fidelity, respondents were asked eight questions about retirement, including the estimated amount of savings they would need, what percentage of savings should be withdrawn each year, and how many years someone retiring at age 65 should expect to live in retirement. In addition to most of the participants getting the questions wrong, the study also proved that retirement myths and misconceptions hold many people back from having the right retirement plan in place.

So does retirement literacy really matter? And is it a determinant of retirement success? According to the research, it appears that retirement literacy leads to better planning, higher confidence, and improved retirement planning satisfaction. For those survey participants with a passing grade, they were most likely to have:

  • a long-term care plan in place
  • more likely to feel confident managing their own investment assets
  • more likely to have an estate plan
  • more likely to have a comprehensive written retirement plan, and
  • higher confidence in their assets lasting throughout retirement

So it’s clear that knowledge does lead to more confidence in retirement which leads to less stress, which leads to better health. We encourage everyone to learn more about retirement planning…sooner rather than later. There’s a myriad of things you should be doing to prepare for your retirement where time is your greatest asset.

In addition to making an effort to learn more, we believe that it’s important to seek out the assistance of a retirement specialist who can both guide you and implement a plan with the proper research-backed strategies. Before you hire anyone, make sure you do your due diligence, get referrals, talk to a number of advisors, check out their education and credentials, and understand how they are compensated. Read more about Why Your Retirement Advisor affiliated advisors are better here

 

Take the American College IQ Test Here

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Here’s the 8 Fidelity questions…Are you able to answer them?* Contact us for the answers (info@yourretirementadvisor.com)

  • Question#1: Roughly how much do investment professionals estimate people save by the time they retire?
  • Question #2: How often over the past 35 years do you think the market has had a positive annual return
  • Question #3: If you were able to set aside $50 each month for retirement, how much could that end up becoming 25 years from now, including interest if it grew at the historical stock market average?
  • Question #4: Given the current average life expectancy, if you want to retire at age 65, about how long would you need your retirement savings to last?
  • Question#5: Approximately how much did the average monthly Social Security benefit pay in 2016?
  • Question #6: About what percentage of your savings do many financial experts suggest you withdraw annually in retirement?
  • Question #7: What do you think is the single biggest expense for most people in retirement?
  • Question #8: About how much will a couple retiring at age 65 spend on out-of-pocket costs for health care over the course of retirement?

*Fidelity Retirement IQ Survey, 2017