Four Out of Five Older Americans Fail Retirement Income Literacy Survey

September 15, 2020 0 By administrator

King of Prussia, PA, Sept. 15, 2020 (GLOBE NEWSWIRE) — According to the 2020 Retirement Income Literacy Survey, four in five older Americans fail to understand the basics on how to successfully plan for a financially secure retirement, a concerning finding from one of the most comprehensive surveys on retirement income literacy. Retirees and pre-retirees (ages 50-75) displayed a lack of knowledge around awareness of income in retirement, basic investment management and understanding of long-term care needs – yet those with a written retirement plan in place reported feeling more prepared to navigate the COVID-19 pandemic than their counterparts did.

A majority of respondents are holding their financial plans steady amid the COVID-19 pandemic, yet just one in three report having a formal, written retirement plan in place.

These findings are part of the third iteration of the Retirement Income Literacy Survey from The American College of Financial Services, testing consumers’ knowledge about retirement income concepts and focusing on the drawdown phase when Americans have limited or no ability to earn additional money through work. This year’s study expanded the scope of those surveyed to include Americans ages 50-75.

 “With a troubled economy and an acceleration of early or forced retirements, consumer understanding of retirement principles is particularly important. Yet the survey demonstrates that retirement literacy remains troublingly low,” said Steve Parrish, JD, RICP®, CLU®, ChFC®, RHU®, AEP®, Adjunct Professor of Advanced Planning and Co-Director of the Retirement Income Center at The American College of Financial Services. “Financial advisors should take heed of this situation and embrace the opportunity it provides to help Americans prepare for a successful retirement.”   

Knowledge Gap Needs to Close in Retirement Income Planning and Investment Management

Retirement literacy in 2020 remains low overall, as was the case in The College’s 2014 and 2017 surveys, with eight in ten (81%) failing a 38-question retirement literacy quiz. In fact, the average score of the quiz was just 42%. This is further underscored by consumers’ own lack of confidence – only a third of consumers consider themselves highly knowledgeable about retirement income planning.

Among the financial planning elements driving low scores on the quiz was consumers’ particularly low level of knowledge about preserving assets and sustaining income in retirement:

  • More than half underestimate the life expectancy of a 65-year-old man, suggesting that many do not realize how long their assets may have to last.
  • 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 determine a prudent withdrawal rate.
  • Only 35% know that a negative single year return in a retirement portfolio has the most significant impact on long-term retirement…

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