Knowledge Areas Related to Retirement Income
Direct experience seems to contribute to applied financial knowledge in certain areas—yet the unknown may catch Americans unprepared.
A Closer Look at Underlying Scores
Although both overall scores and underlying scores are low across the board, respondents show significantly greater knowledge of certain areas, including inflation, housing, Medicare, life insurance, and Social Security—all of which garnered higher scores than the overall average (31%). Most of these topics, except for Medicare, tend to affect Americans’ financial planning well before retirement age (or in the case of this study, before the minimum respondent age of 50). For example, high inflation has been a trending topic in mass media and a tangible problem for many, as it directly affects day-to-day budgeting for millions of Americans today.
In contrast, respondents have extremely poor knowledge of products they may use to generate and secure their retirement income, as indicated by significantly lower scores related to investments and annuities.
Respondents who work with financial advisors score higher on every knowledge area than their counterparts who go it alone, resulting in higher overall Retirement Confidence.
Life Expectancy and Long-Term Care
The study also explores the topic of longevity, an essential knowledge area to understand when planning retirement income to last a lifetime. Americans consistently underestimate life expectancy and are unaware of how long individuals tend to live, with just over one in five (22%) expecting to live past 89 and just over one in four (27%) able to correctly identify the average life expectancy of a man at age 65.
As respondents are experiencing what the U.S. Census Bureau calls the “Graying of America” through the aging of their friends, family, and communities, the message many financial professionals have been saying (that is, “plan to live longer”) will start to become a real concern. If Americans underestimate their own life expectancy, they risk exhausting their savings in retirement—potentially outliving their assets.
Another concern—and an important educational opportunity—is low literacy as it relates to long-term care. On average, respondents correctly answered only one out of five questions about paying for long-term care. Older Americans need to have financial literacy in this area to plan for their retirement income. Preparing for long-term care may help individuals not only to live longer, but also to live well longer.
On average, respondents correctly answered only one out of five questions about paying for long-term care.
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