Retirement Income Literacy is Lacking in Americans
The Journal of Financial Planning had a recent article on retirement income literacy. It's a fascinating look into whether Americans have a basic knowledge of what it takes to plan for their income in retirement. This is based on a survey of retirement income literacy of Americans between the ages 60 and 75. The findings? Americans have a low rate of literacy about retirement and that hasn’t improved over the last four years. Only 26% of the people who took the survey and were of retirement age passed the quiz by answering 60% or more of the questions correctly.
When broken down into different categories, people knew more about Medicare planning than any of the other various subjects. The subject that had the worst scores was annuities. This is understandable as annuities can be so complex that even an expert has trouble trying to analyze all the features and benefits of an annuity. Maybe this is why annuities are often the product used for the hard sell to seniors. They are complex to understand and people have very low levels of knowledge about them. There is a mismatch of knowledge between sellers of annuities and buyers of annuities.
One other very interesting result of the survey is that 88% of the people who took it believe they were either moderately or extremely knowledgeable about retirement income planning. This is a high hurdle even for financial planning professionals. Out of this group of 88%, only 29% passed the literacy quiz. The implications from this are that many people who believe themselves to be adequately knowledgeable and prepared for retirement might be making some big mistakes.