A new study connects participants’ confidence in retirement planning with how well they understand key matters related to their future.
The “Retirement Fluency” benchmark by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) measures participants’ knowledge on Social Security, Medicare, and other options for retirement savings, finding that when asked about these topics, Americans could only correctly answer 40% of the questions.
The benchmark was added this year to the 2024 TIAA Institute-GFLEC Personal Finance (P-Fin) Index, an annual barometer that gauges financial literacy, and consisted of five multiple-choice questions.
The report found that participants continue to struggle in understanding retirement planning and savings. For example, most respondents did not recognize that a retirement savings opportunity with an employer match is better than one without a match, and almost 60% of respondents were unaware that Social Security benefits last for a lifetime.
A majority of participants lacked basic understanding of how long people tend to live in retirement, with almost 60% saying they either didn’t know, or they underestimated the life expectancy of a 65-year-old. According to the report, just 32% knew the correct answer: age 84 for men and age 87 for women.
“Now, more than ever, financial literacy is crucial to addressing our very real retirement savings gaps,” said Thasunda Brown Duckett, CEO of TIAA. “This report shows that if we’re going to improve retirement outcomes, we have to start by improving our understanding of how to save and how long our retirements will be. While there are no quick fixes to boosting our Retirement Fluency, increasing access to education resources and operating with intentionality will get us on the road toward financial health and resilience.”
The research highlighted a link between retirement confidence and fluency, noting that those with a higher fluency level are likelier to display more confidence. The findings show that among those with a Retirement Fluency of 40%, only 60% were confident they would have enough money to last them through retirement. Of those who answered at least 80% of the questions correctly, 75% said they felt assured in their longevity.
The index also measured participants’ anxieties with financial literacy, finding that those with a low level of financial literacy are “twice as likely to be debt-constrained, four times more likely to lack one month of emergency savings, and three times more likely to not have any confidence in their retirement income prospects.”
“The consistently low levels of financial literacy among U.S. adults and, particularly, among the most vulnerable groups in the population is troubling,” said Annamaria Lusardi, an economist from Stanford University and GFLEC. “These findings are a call to action. With financial literacy month underway, it is high time to change the conversation about money, starting with adding financial education in school and college.”
SEE ALSO:
- Over 40% of Americans Don’t Know What a 401(k) Is, Poll Finds
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- Participants are Failing at Retirement Literacy
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.
