Do you know when to start drawing Social Security payments? What about a safe amount to draw down from savings?
If you are hemming and hawing, you’ve got company. In a newly released survey, 80 percent of the respondents received scores of 60 or lower on financial questions about retirement. Just 20 percent received what amounted to a passing grade.
The survey, part of the larger Retirement Income Literacy Survey conducted for The American College of Financial Services, was given this summer to 1,019 Americans ages 60 to 75 with at least $100,000 in assets. It covered everything from Social Security and Medicare to financial concepts, life expectancy and investment strategy.
Americans’ lack of knowledge about making a nest egg last is surfacing at a time when financial literacy nationwide is coming up short. In a study or retirement readiness published in 2011 by the National Bureau of Economic Research, only half the respondents could correctly answer a question on diversification and risk, and only two-thirds appeared to understand compound interest. And a 2013 survey by the Financial Industry Regulatory Authority found that financial literacy actually declined slightly between 2009 and 2012, despite widespread efforts to boost financial smarts.
David Littell, retirement income program director at The American College, said he expected to see gaps in the financial knowledge of the survey respondents, but even so, the results to the 38 questions were dismaying.
“Individuals have to make a lot of their own decisions today,” what with defined contribution retirement plans and the like, he said. “It’s hard to understand how you can make good choices without some basic knowledge of these issues.”
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The lack of knowledge also conflicted with survey respondents’ assessments of their retirement prospects. Only 27 percent said they have a formal, written retirement plan, although 4 in 10 described themselves as somewhat or very knowledgeable about saving for retirement. Only 31 percent knew that they should draw down no more than 4 percent of their assets a year in retirement—even though 65 percent expect to live to at least age 80.
Littell hopes The American College can use the survey’s findings to help financial advisers address this lack of retirement knowledge with their clients. Perhaps, he said, they could even administer the questions.
“There is an awful lot of information available” on how to plan for retirement, he said. “When you put a spotlight on it, it reminds people.”
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