A recent survey by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at Stanford reveals significant gaps in Americans’ knowledge when it comes to important aspects of retirement planning, such as Medicare, Social Security, and company pension plans.
The survey, in which almost 3,900 people aged 18 and over took part in January 2024, showed disappointing results. Less than 40 percent answered at least three of the five questions on pensions correctly.
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The average participant answered only two questions correctly, and worryingly, one in five could not give a correct answer. This lack of knowledge about retirement can seriously affect financial security in later years.
Paul Yakoboski, senior economist at the TIAA Institute, pointed out the direct impact of this knowledge gap. “How long retirement typically lasts has a direct impact on how you manage your wealth and consume it,” he noted. For example, knowledge of Social Security and how it works can help determine the optimal time to start claiming benefits, which can significantly increase retirement income.
Despite these challenges, the survey also revealed some positive aspects. Older generations such as the Silent Generation and the Baby Boomers performed better on the questions about retirement, probably because they are closer to retirement or already have experience with it. On average, they answered about 50 percent correctly.
Thasunda Brown Duckett, CEO of TIAA, emphasized the importance of financial literacy, saying, “This report shows that if we want to improve retirement prospects, we must first improve our understanding of how we save and how long we stay in retirement.” She explained that while there is no quick fix or immediate solution, improved access to educational resources and purposeful action will put Americans on the path to financial health and resilience.
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Test your knowledge about retirement Want to know how well you know about retirement planning? Here are the top five questions from the 2024 TIAA Institute/GFLEC survey. See how your answers stack up:
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Social Security Accuracy: Which statement about Social Security is false? A. Social Security benefits depend on earnings during the last two years of employment. B. Social Security provides benefits if you become disabled before retirement. C. Social Security payments continue for life, regardless of life expectancy. D. Don’t know.
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Medicare coverage: What percentage of a retiree’s health care costs are typically covered by Medicare? A. Over 90%. B. About two-thirds. C. About half. D. Don’t know.
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Maximizing retirement savings: If Latisha contributes $2,000 to a 401(k) plan and her employer matches up to $5,000, how much will she have at the end of the year if the fund grows 5%? A. $2,100 in a 401(k). B. $2,100 in an IRA. C. The same amount in both cases. D. Don’t know.
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Planning for longevity: What is the best way for Susan to ensure that she does not outlive her savings? A. Buy an annuity. B. Buy life insurance. C. There’s nothing you can do. D. Don’t know.
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Life expectancy: How long is a 65-year-old man in the United States expected to live, on average? A. Another 14 years (age 79). B. Another 19 years (age 84). C. Another 24 years (age 89). D. Don’t know.
How long is a 65-year-old woman likely to live? A. Another 17 years (age 82). B. Another 22 years (age 87). C. Another 27 years (age 92). D. Don’t know.
Answers: 1. A; 2. B; 3. A; 4. A; 5. B (for men and women).
Whether you’re a retirement planning pro or just starting to learn the basics, consulting with a financial advisor is a smart move. A professional can provide you with tailored advice that fits your personal financial situation and retirement goals. Remember, it’s never too early or too late to start planning for your future. Expert advice can go a long way toward helping you get the most out of your retirement savings.
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This article Most Adults Fail This Simple 5-Question Retirement Quiz – Can You Pass? originally appeared on Benzinga.com
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