On Retirement

Most women flunk retirement income literacy quiz

Many female clients want advisers to educate them about investing and longevity risks

Jul 27, 2017 @ 1:29 pm

By Mary Beth Franklin

It is unfortunate that the people who are likely to live the longest understand the least about how to make their money last a lifetime.

Only 18% of retirement age women can pass a basic quiz about how to make a nest egg last in retirement, according to findings from The American College of Financial Services' 2017 RICP Retirement Income Literacy Gender Differences Report. That's about half the rate of men of the same age. RICP stands for Retirement Income Certified Professional, a designation offered through The American College.

Even though more than 80% of women failed the quiz, the majority—55%—are still extremely confident that they and their spouses would have enough money to retire comfortably. Call it the Scarlett O'Hara syndrome. Apparently, many women simply plan to think about it tomorrow. Unfortunately, many of them will spend their final years alone due to divorce, widowhood or never being married.

"Women face considerable challenges when it comes to preparing for retirement, and lacking financial literacy certainly does not help the cause," said Jocelyn Wright, Assistant Professor of Women's Studies at The American College of Financial Services. "This is a problem, especially when a female at age 65 can expect to live another 20 years on average—two years longer than the average man," Ms. Wright said. "With this in mind, women cannot depend on their spouse to hold the keys to their retirement," she added. "It is time to get smart on how to navigate this complex and extremely important stage of life."

More than 1,200 men and women ages 60 to 75 with assets of $100,000 or more participated in the study earlier this year. Retirement literacy remains low across the board for both men and women. Nearly three-quarters of respondents failed the 38-question retirement literacy quiz. Only 5% of respondents scored a B grade or higher, meaning they answered 81% or more questions correctly.

In this quiz, wealthier respondents had a clear advantage with nearly half (49%) of those with $1million or more in assets passing the quiz compared to just 20% of those with less money. Interestingly, respondents who work with a financial adviser performed worse on the quiz than do-it-yourself investors, with only 22% of advisory clients passing the quiz compared to 34% of those who go it alone.

But those results did not surprise Ms. Wright. "Most people who work with an adviser, particularly women, want an adviser to 'do it for me' or 'do it with me', shifting the primary role to the adviser," she said.

Women demonstrated lower literacy rates in 10 out of 12 knowledge categories, including annuity products, company retirement plans and investment considerations in retirement planning. However, women performed just as well as men on the topic of Medicare planning and exceeded men's scores on the topic of paying for long-term care expenses.

Part of the problem may be that most women don't see themselves in the driver's seat when it comes to retirement income planning. Only 20% of women responded that they were the primary financial decision maker compared to 65% of married male respondents. But of those who identified themselves as the primary financial decision maker, more than a quarter passed the quiz compared to only 12% of those who self-identified as making shared financial decision with a spouse.

While the majority of women lack retirement income literacy, most do understand the value of a financial adviser and believe advisers are a good source of knowledge about retirement income. While both men and women seemed equally satisfied with their financial advisers—roughly 76% of women and 71% of men—women want different services from their advisers.

More than half—55%—of female respondents said it was extremely important for advisers to educate them on how much they can afford to spend money in retirement without running out of money compared to only 42% of men. Additionally, 60% of women said it was important to receive education from advisers about investment management versus only 47% of men.

The survey demonstrated a positive relationship between retirement income literacy and retirement preparedness. Respondents who passed the quiz were 46% more likely to have a long-term care plan in place and 16% more likely to have a written plan in place. Two-thirds of the respondents who passed the quiz were more likely to want an adviser to be a fiduciary and 11% more likely to feel confident about their retirement plan.

"Better planning correlates with more knowledge and well-informed clients place more value on the services of a financial adviser," said Jamie Hopkins, Retirement Income Program Co-Director at the American College of Financial Services. "These clients are more likely to be satisfied with their adviser and recommend them to family and friends."

A separate study found that widows who stayed with their adviser after the death of their husband did so because they had an established relationship and a retirement plan in place prior to the death of their spouse, Ms. Wright noted.

(Questions about new Social Security rules? Find the answers in my new ebook.)

Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.

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