If retirement were college, most older Americans would flunk out

Only 45% of affluent Americans ages 60 to 75 recognize that a life annuity can protect against life expectancy risk, according to a recent survey by The American College.

A recent Retirement Income Literacy Survey from The American College of Financial Services showed that older Americans (ages 60 to 75, with at least $100,000 in investments) are less retirement income-literate than they think.

While more than three-fifths (61%) of about respondents thought they understand retirement income, only 33% of those surveyed could pass a quiz on life expectancy, long-term care expense, investing and generating retirement income that was administered by The American College (See grade range below). 

Retirement Income Literacy Grades

The demographic divide

There are significant differences in literacy rates between men and women, college educated and non-college educated, and between wealthier and less wealthy respondents.

  • Only 17% of women passed the quiz, as opposed to 35% of men 
  • 49% of respondents with over $1 million in assets passed as opposed to 20% of respondents with below $1 million in assets
  • 40% of those with a graduate degree or more passed – as opposed to just 9% of respondents without a college degree who passed 

Clueless on strategies to improve retirement security

  • Only 33% understand that it is more effective to work two years longer or defer Social Security for two years than to increase retirement contributions by 3% for five years just prior to retirement
  • Only 45% recognize that a life annuity can protect against life expectancy risk
  • Only 38% of participants in the survey know that 4% is the amount they can afford to “safely” withdraw per year from a retirement account

Long-term care: Out of sight, out of mind

  • 82% of respondents do not expect that most older Americans will need long-term care at some point in their lives. When considering long-term care, respondents lack knowledge on several critical items.
  • Only 33% know that Medicaid pays for the majority of long-term care expenses provided in nursing homes
  • Only 30% know that family members—not nursing homes, assisted living facilities, or hospitals—pay most long-term care costs

Power of retirement literacy

Respondents who passed the quiz were:

  • 46% more likely to have a long-term care plan in place
  • 36% more likely to feel confident they could manage their own investments throughout retirement
  • 16% more likely to have a written plan in place

The American College commissioned Greenwald & Associates for the study. Respondents were asked a number of knowledge, behavior and attitudinal questions about retirement income planning.

Information for this study was gathered through online interviews with 1,244 Americans conducted Feb. 16 – March 1, 2017. Respondents were ages 60-75 and had at least $100,000 in household assets, not including their primary residence.

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