Only 26 percent of older Americans – with investable assets of at least $100,000 – were able to pass a retirement income literacy quiz, which asked 38 questions over a variety of topics such as taxes, Medicare, Social Security and retirement plans like 401ks.
And they didn’t exactly pass with flying colors. Less than 1 percent scored between 91 and 100 percent; roughly 5 percent scored between 81 and 90 percent; and 8 percent scored between 71 percent and 80 percent. The largest range of scores for passing grades was between 61 and 70 percent, which accounted for 13 percent of all test takers and roughly half of all passing scores.
The quiz is the centerpiece of a recently published research study in the Journal of Financial Planning, titled, “Retirement Income Literacy: A Key to Sustainable Retirement Planning,” by Jamie P. Hopkins, J.D., LL.M., RICP, CFP, ChFC, CLU; and John A. Pearce II, Ph.D. The American College New York Life Center for Retirement Income created the quiz in an effort to fill a void of research specifically on comprehensive retirement income planning literacy.
Roughly 1,200 Americans between the ages of 60 and 75 participated in the study. The “at least $100,000 of investable assets” criteria means the data set excluded lower-income Americans.
The 2017 retirement income literacy survey found older Americans displayed a lack of knowledgeon vital topics such as preserving assets, sustaining retirement income, investments, long-term care, Social Security, and annuities. Within specific topic areas, respondents showed the highest level of knowledge about Medicare with an average score of 76 percent; and demonstrated the lowest level of knowledge about annuities, with an average score of just 20 percent.
- Surely you’ll pass the quiz, right? Find out by taking it here.
The survey results demonstrate the significant power of financial literacy: planning, confidence, and retirement satisfaction all improved as literacy rates increased.
The study’s authors say this is important knowledge for financial advisors, as educating clients on retirement risks and strategies can help clients understand their plan better and feel more confident about their own retirement. For instance, among those who passedthe literacy quiz:
- 46 percent were more likely to have a long-term care plan in place (compared to those who failed the quiz);
- 36 percent were more likely to feel confident that they could manage their own investments throughout retirement;
- 16 percent were more likely to have a written comprehensive retirement plan in place;
- 87 percent were more likely to take risks after doing research; and
- 8 percent were more likely to have an estate plan in place.