Retirement Test

Americans Continue to Get Failing Grades on Retirement Readiness

Retirement Test

We have published many articles about the woeful state of financial literacy in America. Just when we thought it could not get any worse, along comes this story from the American College of Financial Services. A little over 1,000 people age 60-75 with at least $100,000 of financial assets were given a basic quiz on how to make their nest eggs last throughout retirement. The chart below displays the dismal result of only 20% getting a passing grade.

Here are some of the specific results that should be a cause for concern.

  • The 4% Safe Withdrawal Rate Rule was unknown to more than two-thirds (69%) of the respondents. Please note that we at Index Fund Advisors do not specifically advocate the 4% rule, as we believe that retires should regularly reevaluate their situation and decide on a withdrawal amount that factors in anticipated longevity, current level of assets, and expected future returns plus volatility.
  • Almost half (47%) of Americans are unclear on the best time to claim Social Security. In general, for people in good health, it pays to delay claiming retirement benefits until age 70, but every individual and married couple should be evaluated on their own merits. At Index Fund Advisors, we have assisted many of our clients with this question.
  • Only two in five (39%) understand that bond values decrease when interest rates rise.
  • Less than one in ten (7%) understand that small company stock funds have a higher return over time than large company stock funds, dividend-paying stock funds, or high yield bond funds.
  • There is a disconnect between the quiz results and the fact that more than half (55%) consider themselves well-prepared to meet their income needs in retirement, and almost all (91%) are at least moderately confident in their ability to achieve a secure retirement.

Professor David A. Littell, Retirement Income Program Director at the New York Life Center for Retirement Income at the American College, summarized the results perfectly when he said, “No one liked getting Fs back in school, but retirement income literacy is a test Americans simply cannot afford to fail…Now is the time to raise retirement income awareness and give Americans the strategies and knowledge they need to address this challenge…Financial advisors, plan sponsors and financial services companies all have a role to play in raising Americans’ grades when it comes to awareness and understanding of basic retirement income principles.”

At Index Fund Advisors, we are committed to do all that we can to educate investors in all aspects of investing. If you would like to learn more about how IFA can help you plan for retirement, please give us a call at 888-643-3133.