Even if you plan well for retirement and have a reasonable amount saved, you can still end up in financial trouble during your golden years. There are lots of money traps that even reasonably prepared seniors can fall into if they’re not well-versed in the unique details of retirement-stage personal finance — and the new RICP Retirement Income Literacy Survey from The American College of Financial Services shows that a disturbingly high percentage of them are not going to be retirement ready.
Of the 1,244 Americans interviewed — all of them between ages 60 and 75, and possessing at least $100,000 in household assets, not including their primary residence — three out of four failed a quiz designed to evaluate their ability to make their nest eggs last through retirement. The report also showed that respondents were generally unclear about such important topics as long-term care expenses, investment considerations, strategies for sustaining income throughout retirement, and life expectancy.
Most are not prepared
The survey respondents were generally confident about their financial literacy — 61% said they had “high levels of retirement income knowledge.” Only 33% of those who felt that way actually passed the quiz, however. Overall, 74% of the total quiz takers scored below 60%, while another 13% received a D for a score between 60% and 69%. Of the rest, 8% earned a C, while 5% scored a B, and fewer than 1% managed to get an A.
“Over the next 12 years, an estimated 10,000 Baby Boomers will reach the age 65 every day,” said American College of Financial Services Retirement Income Program Co-Director David Littell in a press release. “More and more Americans are retiring but so few understand basic facts and strategies when it comes to ensuring that their retirement is a comfortable one.”
One of the biggest challenges retirees face is making their savings last as long as they do. But survey respondents did particularly poorly on questions relating to retirement security.
For example, only 33% of those surveyed understood that working for two extra years would do more to improve their retirement security than boosting their retirement account contributions by 3% for the last five years of their careers.
In addition, only 38% were aware of the “4% Rule,” a commonly used guideline for the percentage of your retirement accounts’ assets you can safely withdraw each year.
“Retirees are living much longer so there’s a need for smart advice around how to turn consumers’ nest eggs into something they can live on for up to three decades or longer in many cases,” said American College of Financial Services Retirement Income Program Co-Director Jamie Hopkins in the press release.