A quarterly study that examines how well Americans are monetarily prepared for retirement demonstrates a strong correlation between people’s financial education and their level of retirement readiness.
For example, Americans effectively answered an average of just 40% of the retirement-related issues. Only 60% of those with that level of retirement fluency were assured that their retirement would be easily spent the rest of their lives. But for those who answered at least 80% of the questions correctly, this figure jumped to 75%.
These findings are from the 2024 TIAA Institute-GFLEC Personal Finance (P-Fin ) Index—the 8th edition of the annual report, which for the first time also covered “Retirement Fluency.” The benchmarking expression, which seemingly has been trademarked by the institutions, measures how many people know about subjects, such as Social Security, Medicare and options for superannuation savings.
The Retirement Fluency portion of the study consisted of five multiple-choice concerns. For most of the questions, nearly a third of respondents (30%) answered, “don’t know.” Very few (4%) were able to correctly answer all five questions. On the internet, the share of adults who correctly answered none of the retirement fluency questions (19%) was equal to the share who correctly answered 80% or more (17%).
Not surprisingly, the centuries close to and in pensions were more educated on the retirement-related subjects covered. However, only about half of the questions were answered accurately by Baby Boomers and the Silent Generation, signaling reason for concern, the report notes.
And many faults stood up, according to TIAA. For instance:
- The majority of respondents failed to acknowledge the superiority of a retirement saving option with an employer match.
- About half (53%) of people were aware that purchasing an annuity could guarantee lifetime income, reducing the possibility of outliving retirement savings. Some people responded that purchasing life insurance may be beneficial or that nothing could be done.
- Nearly 60% of respondents were unaware that Social Security benefits are cumulative and that employees are eligible for benefits if they experience disabilities before retiring.
- The vast majority of persons lacked a basic knowledge of how much people typically live in pensions, a gap that might prevent them from saving enough money to last a lifetime. Almost 60% said either they didn’t know, or they underestimated the life expectancy of a 65-year-old. Only a third of respondents (32%) knew the correct answer: age 84 for men and age 87 for women.
- About 30% were aware that Medicare covers about two-thirds of retirees’ health care costs.
Financial education is essential to addressing our very genuine retirement savings spaces, according to TIAA CEO Thasunda Brown Duckett. This report demonstrates that if we want to improve retirement outcomes, we must first improve our understanding of how to save money and how much our retirements will last. While there are no quick fixes for improving our retirement readiness, she continued, “Increasing access to educational tools and operating with intentionality will put us on the path to financial wellbeing and endurance.”
Financial Literacy Lacking
The annual statement also included information about Americans ‘ understanding of personal finance. People effectively answered about half of the 28-question study, which TIAA notes has been the accepted practice since the survey’s beginning, according to TIAA.
Overall, just 16 % of respondents effectively answered at least 22 issues, which raises concerns about people making financial decisions with a subpar level of financial literacy.
The P-Fin Index also makes abundantly clear that financial literacy is essential to maintaining economic health. For starters, those with a extremely low level of financial education are twice as likely to become delinquent as those with a extremely low levels, four times as likely to have no evacuation saving for a month, and three times as likely to have no faith in their retirement income prospects.
The consistently low levels of financial literacy among U.S. citizens. S. adults and, particularly, among the most vulnerable groups in the population is troubling, ”emphasized Annamaria Lusardi, an economist from Stanford University and GFLEC. “These findings are a call to action. It is high time to change the conversation about money now that financial literacy month is in full swing, starting with financial education in both school and college,” she added.
The full report can be downloaded at the TIAA Institute’s website.