The American College of Financial Services has unveiled the findings from its 2023 Retirement Income Literacy Study, spotlighting a significant gap in retirement knowledge among older Americans.
Drawing from a survey of more than 3,765 individuals ages 50 to 75, the study found a concerning lack of knowledge, with participants garnering an average score of 31% on a retirement literacy quiz.
"In the U.S., with the exception of Social Security and the comparatively small number of workers with guaranteed pensions, saving for retirement is voluntary,” said Steve Parrish, professor of practice at the American College of Financial Services. “This requires the consumer to know how much to save, where to save it, and how much to draw down at retirement."
According to the study, older Americans consistently underestimate their need for lifetime retirement income. Just one-fifth of respondents (22 percent) expected to live past 89, and a little more than one-quarter (27 percent) were able to correctly state the average life expectancy for a 65-year-old man.
The data showed literacy levels diverging along several demographic lines. Respondents with assets over $1.5 million scored significantly higher than those with less than $100,000 (50 percent versus 25 percent, respectively).
Education was another key factor, as participants with advanced degrees and college graduates tended to have higher scores.
Retirement income literacy scores tended to be higher among white and Asian respondents than for Black and Hispanic individuals. The financial gender gap also made itself felt in the survey, with men consistently scoring higher on the retirement knowledge scale than women.
The study also found a clear correlation between higher retirement literacy and engagement with a financial advisor. Aside from having higher scores, individuals receiving advice from financial professionals reported better financial health and expressed increased confidence about their retirement prospects.
Those who have active relationships with financial advisors outperformed their non-advised counterparts by 11 points in retirement income literacy (3 percent versus 27 percent), the college found.
Advised individuals also scored higher on the Consumer Financial Protection Bureau's financial well-being scale, averaging 50 percent, compared to just 41 percent for those without advisors.
“When we measured financial anxiety and financial stress, those with a financial professional had 20 percent less financial anxiety and 25 percent less financial stress,” added Chet Bennetts, director of the college’s CFP Certification Education and Chartered Financial Consultant programs.
“In the complex realm of financial planning, the idea that a one-size-fits-all approach suits everyone is a misconception,” said Kaylee Ranck, director, office of college research at the American College of Financial Services. “Developing personalized plans that take into account individual goals, projected lifespan, and specific health care requirements within the constantly evolving and intricate landscape of retirement is essential for ensuring a secure financial future.”
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