Most respondents to a new study by the American College of Financial Services had a poor understanding of how to plan for the finances they will need in retirement.
Results of the 2023 Retirement Income Literacy Study were released Wednesday. They come as senior living and care operators prepare for a “silver wave” of baby boomer retirees, some of whom already have begun considering or moving to long-term care settings out of choice or need.
“In the US, with the exception of Social Security and the comparatively small number of workers with guaranteed pensions, saving for retirement is voluntary. This requires the consumer to know how much to save, where to save it and how much to draw down at retirement,” Steve Parrish, professor of practice for the group, said in a press release.
“This necessitates understanding basic concepts about investing, taxes, insurance and finances. To measure how prepared Americans are for retirement, an important consideration is how knowledgeable consumers are about retirement,” he added.
A direct relationship exists between financial literacy and confidence in retirement savings, the ACFS said.
But in the survey of 3,765 Americans aged 50 to 75 years, the overall average Retirement Income Literacy Score was 31% out of a possible score of 100%. Those with more than $1.5 million in assets scored twice as high as those with less than $100,000.
Participants were asked questions related to their knowledge of long-term care, housing, annuities, inflation, investments, life insurance, Medicare, retirement plans, Social Security and taxes.
The survey results are concerning, according to the survey report authors, because an increasing number of Americans are retiring. It is estimated that 12,000 baby boomers — those born between 1946 and 1964 — are retiring each day. The oldest members of the Baby Boom generation are turning 78 this year, and the youngest are turning 60.
A key message, according to the report authors, is that working Americans need to figure out how to fund their retirements, including how much to save, how to save it and where to save it.
Secondly, the report stated, “as the population ages, the focus of retirement planning conversations must shift from accumulating assets to taking income — meaning how much to draw down at retirement and which withdrawal strategies best meet individual needs.”
The study is the fourth wave of the group’s research on financial literacy, which has been conducted every three years since 2014.
