Could retirement fluency cure Americans' financial uncertainty?

Knowledge is power, and when it comes to retirement, fluency is confidence.

That’s according to a new study that suggests a direct correlation between Americans' understanding of retirement essentials and their confidence in their financial security for their later years.

A portion of the 2024 TIAA Institute-GFLEC Personal Finance (P-Fin) Index, the latest addition to the annual joint research series by the TIAA Institute and the Global Financial Literacy Excellence Center, centers on respondents’ retirement fluency, which is the first time that aspect has been included.

When quizzed on their knowledge across several key areas including Social Security, Medicare, and retirement savings options, Americans on average answered only 40 percent of the retirement-related questions correctly, with around 30 percent of the respondents answering “don’t know” to most of those questions.

Among the glaring mistakes, most of those polled failed to realize that a retirement solution that includes an employer match is better than an option without matching.

Another striking revelation was the widespread misunderstanding of Social Security benefits, with almost 60 percent unaware that these benefits continue for life, and are available prior to retirement in cases of disability.

Similarly, misconceptions about their likely lifespan post-retirement were prevalent, with nearly 60 percent underestimating how long they might need their retirement savings to last.

“This report shows that if we're going to improve retirement outcomes, we have to start by improving our understanding of how to save and how long our retirements will be,” Thasunda Brown Duckett, CEO of TIAA, said in a statement.

The research also found a strong positive link between retirement fluency and people’s feelings of retirement readiness.

Among respondents who answered 80 percent of the questions correctly, 75 percent felt confident they could maintain a comfortable lifestyle through retirement, compared to only 60 percent of those who got just 40 percent of the retirement questions right.

The P-Fin Index also shed light on broader financial literacy issues, with only 16 percent of participants displaying a high level of financial literacy, defined as correctly answering at least 22 out of 28 personal finance questions.

“The consistently low levels of financial literacy among US adults, particularly among the most vulnerable groups in the population, is troubling," said Annamaria Lusardi, an economist at Stanford University and member of GFLEC, who called the findings “a call to action.”

The P-Fin Index also underscores the importance of financial literacy in promoting financial well-being. Compared to respondents with high financial literacy, those who displayed low literacy were twice as likely to be saddled with debt, four times as likely to not even have a month’s worth of emergency savings, and three times more likely to have no confidence whatsoever in their retirement income outlook.

“While there are no quick fixes to boosting our Retirement Fluency, increasing access to education resources and operating with intentionality will get us on the road toward financial health and resilience," Duckett said.

"With financial literacy month underway, it is high time to change the conversation about money, starting with adding financial education in school and college," Lusardi added.