2023 Retirement Income Literacy Study
Study finds that improving financial literacy supports retirement wellness and confidence
Older Americans Struggle to Understand Retirement Income Topics
In the decade since the Retirement Income Literacy Study began in 2014, older Americans have not improved in their knowledge about retirement income planning. Most respondents to the current study perform poorly, with an overall average Retirement Income Literacy Score of 31%—a failing grade out of a possible score of 100%. There is a direct relationship between respondents’ level of investable assets and overall scores: those with more than $1.5 million score twice as high as those with less than $100,000 (50% vs. 25%).
The overall score is based on how respondents perform in several knowledge areas, including retirement income and related topics:
- Annuities
- Housing
- Inflation
- Investments
- Life insurance
- Long-term care
- Medicare
- Retirement plans
- Social Security
- Taxes
Overall Average Retirement Income Literacy Score
Higher Average Retirement Income Literacy Score Among Those With Most vs. Least Assets
2023 Retirement Income Literacy Study. The American College of Financial Services.
Retirement Income Planning Requires Financial Literacy
Apart from Social Security and the comparatively small number of workers with guaranteed pensions (i.e., defined benefit plans), saving for retirement in America is voluntary. As of its most recent survey, the U.S. Bureau of Labor Statistics indicates only 15% of private industry workers had access to defined benefit retirement plans, and only 11% participated in them. Meanwhile, the U.S. Census Bureau is tracking the graying of America: older adults will outnumber minor children by 2035.
What does this mean in terms of retirement income planning? First, an increasing number of Americans must decide for themselves how to fund their retirement, including how much to save, how, and where to save it. Second, as the population ages, the focus of retirement planning conversations must shift from accumulating assets to taking income—meaning how much to draw down at retirement and which withdrawal strategies best meet individual needs. Most go it alone, without the guidance of a financial professional. The Retirement Income Literacy Study reveals the decision not to work with a financial advisor may have negative consequences in terms of retirement literacy, savings, and confidence.
To retire well financially, today’s older Americans must understand and apply basic concepts about investing, taxes, long-term care, insurance, finances, and more. Measuring financial literacy, as it relates to how these topics impact retirement income, helps indicate how prepared Americans are for retirement. Yet, while there has been a good deal of research on financial literacy in general, almost all studies focus on the accumulation period—that is, growing investable assets, rather than converting and withdrawing income. That is why this study shifts the focus to understand knowledge related to decumulation among the Americans around retirement age.
Although the retirement system is voluntary, opting out of applied knowledge about retirement income needs and withdrawal strategies may mean missing out on desired outcomes.
Study Methodology
The 2023 Retirement Income Literacy Study conducted by The American College of Financial Services measures financial literacy in 12 retirement-related knowledge areas among individuals approaching or in retirement age. Researchers from The College surveyed 3,765 Americans aged 50 to 75 in 24-minute online interviews conducted in August 2023. The data was collected to match the 2020 U.S. Census for gender and race. The insights derived will shape The College's educational initiatives, collaborations, and thought leadership endeavors.
The 2023 study is the fourth iteration since the research began. Its methodology differs from that of prior iterations in important ways—involving a broader group of respondents for more inclusive insights with the potential to make a greater impact on society. Over the years, the sample has expanded to include respondents at younger ages and lower asset levels than before.
Fielded every three years since its inception in 2014, the Retirement Income Literacy Study’s prior iterations were restricted to respondents with investable assets over $100,000, excluding equity in their primary residence. Researchers eliminated this restriction in 2023 to garner a better understanding of savers who may benefit most from financial education and guidance. The iterations fielded in 2014 and 2017 focused on respondents ages 60 to 75. As knowledge about retirement income planning is best acquired—and applied—well before traditional retirement age, researchers lowered the minimum age to 50 starting in 2020.
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