Opportunity Ripe to Increase Retirement Income Literacy

There is much to be done about retirement income literacy, says a recent study that found great lack of understanding about successful planning for a financially secure retirement.  

In its 2020 Retirement Literacy Survey, says The American College of Financial Services, respondents got an average of 42% correct. Further, they said, 80% evinced a lack of comprehension about how to prepare financially for retirement. 

There was some good news. Seventy percent of respondents consider it highly important to have a guaranteed monthly income source in retirement; 60% realize that Social Security benefits increase each year one delays claiming them up to age 70; and just over half—53%—know that there can be benefits to waiting to that age to claim Social Security.

But there were ample suggestions that more can be done to increase understanding of retirement saving and finances, based on responses:

• More than 50% of respondents underestimate the life expectancy of a 65-year-old man; The American College of Financial Services says that this suggests that at least those individuals may not realize how long their retirement savings and investments need to last.  
• 42% have cut spending and/or have largely kept their financial behaviors unchanged.
• 40% felt very ready for the current market downturn. 
• 37% are aware that it can be worth it for a person planning to retire at age 65 to consider taking the least amount of investment risk at that age, not earlier or later than that.
• 33% have a formal, written retirement plan.
• 31% are highly interested in owning a financial product that would deliver guaranteed lifetime income.
• 30% understand that working two years longer or deferring Social Security benefits for two years can be more effective than increasing contributions by 3% for five years just before retiring.
• 28% know that actively managed mutual funds have higher fees that exchange-traded funds (ETFs).
• 26% understand that as interest rates rise, the value of bonds and bond funds falls.

“It is difficult for clients to appreciate the urgency of the issues they face,” says the report, adding that they are unable to make fully informed decisions from the options offered to them. The report says that people are less likely to take ownership in a plan, which can mean that they fail to execute their ownership. “What clients don’t know can hurt them,” says the report. 

The study is available here (free registration is required).