Americans' retirement income IQ is depressing.
In a recent survey by The American College of Financial Services, only 20% of those surveyed can pass a basic quiz on the steps they need to take to secure their finances after retiring.
“No one liked getting Fs back in school, but retirement income literacy is a test Americans simply cannot afford to fail,” said David A. Littell, director of the retirement income certified professional program at The American College. “We were surprised that people who are approaching retirement didn't have a solid grasp on these issues.”
While Americans lack understanding about the risks associated with the most common types of investments, such as stocks and bonds, survey respondents' knowledge is particularly dismal for how to maintain their assets in retirement.
The 4% safe withdrawal rate rule is a virtual unknown to more than two-thirds of Americans, 16% of whom believe it would be safe to withdraw 6% or even 8% per year. One in five people were overly conservative, estimating 2% to be the safest rate.
Despite the failing grades, many Americans are confident about their post-retirement income. More than half of those surveyed consider themselves well-prepared to meet their income needs in retirement, and 91% are at least moderately confident in their ability to achieve a secure retirement.
About 60% of the people surveyed indicated they work with financial advisers at least once a year, but many are too dependent on advisers outlining retirement prospects.
“Maybe advisers misunderstand how much their clients know,” Mr. Littell said. “There is a lot of teaching necessary when it comes to retirement planning and there are some things that aren't sticking.”