Americans are scoring an F on their retirement literacy.
The American College of Financial Services 2023 Retirement Income Literacy Study quizzed participants on retirement income and related topics, finding that most had an overall average literacy score of 31% out of 100%.
Participants with more than $1.5 million in assets scored twice as high in the quiz compared to those with $100,000, as well as participants who work with financial professionals, have higher education levels, are retired, are older, and are white, Asian/AAPI, and male.
Those who worked with financial advisors were likelier to score higher, but their relationship still didn’t yield a passing grade. Participants with ongoing advisory relationships scored an average of 38% on retirement income literacy vs. 27% of those without an advisor. Similarly, participants with an advisor received an average 50% grade on financial wellbeing, compared to 41% who do not work with a professional.
Despite still receiving a failing grade, participants with an advisor said their financial anxiety and stress was lower and their financial confidence was higher than those without one. According to the College, these participants reported having 20% less financial anxiety and 25% less financial stress when working with a professional.
Life expectancy and long-term care
The quiz also asked respondents about longevity and their life expectancy, finding that Americans still underestimate how long individuals tend to live. According to the findings, 22% believe they will live past age 89 and only 27% were able to correctly identify the average life expectancy of a man at age 65.
The findings are even more concerning when factoring long-term care services. On average, the College found that respondents correctly answered only one out of five questions about paying for long-term care.
“Older Americans need to have financial literacy in this area to plan for their retirement income,” the research writes. “Preparing for long-term care may help individuals not only to live longer, but also to live well longer.”
Gaps across demographics
The College notes how disparities across different demographics underscores the fact that financial planning is not universal. Personalized strategies tailored to participants is essential when mapping out plans, and especially when it comes to retirement planning and healthcare, the research states.
“In the complex realm of financial planning, the idea that a one-size-fits-all approach suits everyone is a misconception. Just as each person is unique, their financial strategies should be tailored accordingly, particularly regarding retirement income planning and considerations for long-term care and health care,” says Kaylee Ranck, PhD, director at the Office of College Research at The American College of Financial Services. “Developing personalized plans that take into account individual goals, projected lifespan, and specific healthcare requirements within the constantly evolving and intricate landscape of retirement is essential for ensuring a secure financial future.”
Aside from retirement income, participants were quizzed on annuities, housing, inflation, investments, life insurance, long-term care, Medicare, Social Security, and taxes. The College tested 3,765 Americans between the ages of 50 to 75, noting that this point is critical in managing finances for retirement.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
