Retirement Planning Knowledge
According to plansponsor.com, a retirement income literacy quiz from The American College of Financial Services revealed four in five older Americans fail to understand the basics about many areas of retirement planning.
Americans can use more education about retirement income planning and investment management. Eighty-one percent of the more than 1,500 Americans surveyed failed the quiz. The average score of the quiz was 42%.
Among the financial planning elements driving low scores on the quiz was Americans’ 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 security if it happens at the year of retirement, suggesting a fundamental lack of knowledge about investment risk in the pre-retirement and retirement period.
A Society of Actuaries (SOA) study found half of people are either underestimating or overestimating their life expectancy by five years or more, all based on factors including health, income, lifestyle and family history. The majority of consultants agree on the top three actions for retiree retention: adding distribution flexibility, including retiree-focused investment options and providing employee education/communications.
The American College survey found that only three in ten (31%) respondents have a plan in place for how to fund long-term care needs and only one in four (23%) have some sort of long-term care insurance coverage.
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