Christopher Alarcon
Wealth of Geeks
Wealth of Geeks
According to the United States Bureau of Labor Statistics, only 15% of “private industry workers” have a defined retirement benefit plan. Understanding your retirement plan improves retirement confidence and overall outcomes.
The American College of Financial Services’ 2023 Income Literacy Study shows that seeking financial advice results in higher income literacy and better retirement outcomes. Yet, the study also found that older Americans averaged a mere 31% out of a possible 100% on their retirement literacy quiz, a failing grade.
Now in its tenth year, the Income Literacy Study centers on adults between the ages of 50 and 75 and tests their financial literacy in 12 areas related to retirement incomes, including annuities, housing, investments, life insurance, Social Security, and more.
The primary goal of the 2023 version was to decipher whether Americans in that age range know enough about retirement income to feel confident they will achieve the best possible outcomes. Results were gathered in August 2023 from over 3,750 Americans aged 50 to 75. This annual study is crucial, as 12,000 baby boomers retire daily in the U.S.
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Financial literacy boosts confidence
The Income Literacy Study utilized a Retirement Confidence Scale to measure respondents’ self-reported confidence in retirement knowledge and financial security. The respondents expressed whether they felt they had adequate savings and a high enough net worth to retire comfortably. This, while still managing their investments. Their responses contributed to their Retirement Income Literacy Score (RILS).
Retirement outcomes improve as Americans learn how to fund their golden years. Confidence grows with an increased understanding of financial planning — how much to save, where to keep the money, and learning personalized withdrawal strategies.
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Older Americans struggle to comprehend longevity
Longevity is essential to retirement planning. While the study shows that Americans know more about lived experiences — inflation, Medicare, and housing — they routinely underestimate life expectancy.
Only 22% report an expectation to live beyond age 89. 27% correctly identified the average life expectancy. Underestimating life expectancy can result in premature savings depletion.
These results concern researchers. According to The American College of Financial Services, many Americans plan to supplement their Social Security with their IRA and 401(k) accounts. But Social Security is far from solvent in and of itself.
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Knowledge varies across demographics
The study revealed that retirement planning knowledge varies widely across demographics. College graduates scored well, and those with advanced degrees tend to have higher RILS.
Men scored higher than women, while respondents who identified as “white” or “other” race scored higher than Black and Hispanic respondents.
Participants with a net worth of more than $1.5 million scored twice as high as those with less than $100,000.
These varying RILS show the importance of unique financial strategies tailored to individuals’ incomes, lifestyles, and retirement goals. These personalized plans should consider one’s projected life span and unique health care requirements.
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Financial advisors help increase retirement knowledge
The study found a direct link between high net worth, retirement literacy and working with a financial advisor. Respondents who work with financial planners scored significantly higher across all 12 knowledge areas and reported higher retirement confidence levels.
Participants who consistently connect with financial planners scored 11 points higher on retirement income literacy than those who do not (38% vs 27%). Additionally, advised participants scored nine points higher on financial well-being than those who don’t work with financial advisors (50% vs. 41%).
With tens of thousands of baby boomers retiring daily in the U.S., Americans must prioritize retirement planning. How much to put aside? Where to put it? When to deposit and withdraw money? How to invest and benefit from investments in the short- and long-term?
Though retirement savings are optional, skirting educational opportunities regarding investing and planning can result in financial insecurity. The Retirement Income Literacy Study shows that choosing to work with advisors positively influences a person’s retirement outcomes, financial literacy, and overall economic confidence.
The American College of Financial Services points out the problem with most studies: They focus on the accumulation period, on growing investable assets rather than “converting and withdrawing income.”
The American College of Financial Services’ research team plans to release additional information.
The American College of Financial Services’ 2023 Income Literacy Study shows that seeking financial advice results in higher income literacy and better retirement outcomes. Yet, the study also found that older Americans averaged a mere 31% out of a possible 100% on their retirement literacy quiz, a failing grade.
Now in its tenth year, the Income Literacy Study centers on adults between the ages of 50 and 75 and tests their financial literacy in 12 areas related to retirement incomes, including annuities, housing, investments, life insurance, Social Security, and more.
The primary goal of the 2023 version was to decipher whether Americans in that age range know enough about retirement income to feel confident they will achieve the best possible outcomes. Results were gathered in August 2023 from over 3,750 Americans aged 50 to 75. This annual study is crucial, as 12,000 baby boomers retire daily in the U.S.
—————
Financial literacy boosts confidence
The Income Literacy Study utilized a Retirement Confidence Scale to measure respondents’ self-reported confidence in retirement knowledge and financial security. The respondents expressed whether they felt they had adequate savings and a high enough net worth to retire comfortably. This, while still managing their investments. Their responses contributed to their Retirement Income Literacy Score (RILS).
Retirement outcomes improve as Americans learn how to fund their golden years. Confidence grows with an increased understanding of financial planning — how much to save, where to keep the money, and learning personalized withdrawal strategies.
—————
Older Americans struggle to comprehend longevity
Longevity is essential to retirement planning. While the study shows that Americans know more about lived experiences — inflation, Medicare, and housing — they routinely underestimate life expectancy.
Only 22% report an expectation to live beyond age 89. 27% correctly identified the average life expectancy. Underestimating life expectancy can result in premature savings depletion.
These results concern researchers. According to The American College of Financial Services, many Americans plan to supplement their Social Security with their IRA and 401(k) accounts. But Social Security is far from solvent in and of itself.
—————
Knowledge varies across demographics
The study revealed that retirement planning knowledge varies widely across demographics. College graduates scored well, and those with advanced degrees tend to have higher RILS.
Men scored higher than women, while respondents who identified as “white” or “other” race scored higher than Black and Hispanic respondents.
Participants with a net worth of more than $1.5 million scored twice as high as those with less than $100,000.
These varying RILS show the importance of unique financial strategies tailored to individuals’ incomes, lifestyles, and retirement goals. These personalized plans should consider one’s projected life span and unique health care requirements.
—————
Financial advisors help increase retirement knowledge
The study found a direct link between high net worth, retirement literacy and working with a financial advisor. Respondents who work with financial planners scored significantly higher across all 12 knowledge areas and reported higher retirement confidence levels.
Participants who consistently connect with financial planners scored 11 points higher on retirement income literacy than those who do not (38% vs 27%). Additionally, advised participants scored nine points higher on financial well-being than those who don’t work with financial advisors (50% vs. 41%).
With tens of thousands of baby boomers retiring daily in the U.S., Americans must prioritize retirement planning. How much to put aside? Where to put it? When to deposit and withdraw money? How to invest and benefit from investments in the short- and long-term?
Though retirement savings are optional, skirting educational opportunities regarding investing and planning can result in financial insecurity. The Retirement Income Literacy Study shows that choosing to work with advisors positively influences a person’s retirement outcomes, financial literacy, and overall economic confidence.
The American College of Financial Services points out the problem with most studies: They focus on the accumulation period, on growing investable assets rather than “converting and withdrawing income.”
The American College of Financial Services’ research team plans to release additional information.
