Most Americans Flunk Retirement Fluency Test

Questions that matter

The rate of correct answers on the retirement-specific questions ranged from 30 percent for the question on Medicare coverage to 53 percent for a question on ways to not outlive your money.

That “matters for older generations, because we are talking about issues that they will carry into retirement,” says Paul Yakoboski, a senior economist with the TIAA Institute and a coauthor of the report.

For example, “one question deals with life expectancy in retirement. That’s a big deal for older individuals approaching retirement or transitioning into retirement,” he says.

Two-thirds of respondents got the longevity question wrong, a circumstance Yakoboski says can directly affect financial behavior.

“How long retirement tends to last has a direct impact on how you manage assets and draw them down,” he says. “Having a working knowledge takes you down the road to how you manage your money.”

Similarly, understanding the basics of how Social Security works can help you determine the best time to file for retirement benefits, which increase the longer you wait to claim them between ages 62 and 70. Forty percent of older Americans rely on Social Security income alone in retirement, according to the National Institute on Retirement Security.

“If you haven’t been able to save a lot for retirement and haven’t participated in a defined benefit [pension] plan, Social Security is a big deal,” Yakoboski says. But only 42 percent of survey respondents could correctly identify which of three statements about the program is false.

Older generations score better

Respondents across generations had a tough time with the retirement-fluency questions, but, not surprisingly, the groups most likely to have firsthand experience with retirement — the Silent Generation and boomers — did better. These cohorts, born from 1929 to 1964, got about 50 percent right, on average, compared with 42 percent for Generation X (born 1965–1980), 34 percent for millennials (1981–1996) and 28 percent for Generation Z (1997–2003), for purposes of the survey.

The knowledge gap was narrower in overall financial literacy, with millennials, Gen Xers, boomers and the Silent Generation scoring between 46 and 54 percent. (Gen Z was a relative outlier at 37 percent.) Across the board, respondents knew the most about borrowing and saving but generally did worst on questions related to risk.

The study also found that a greater understanding of personal finance brings a stronger sense of financial security. Seventy-five percent of respondents who answered at least four of the five retirement questions correctly said they were somewhat or very confident they would have enough money to live comfortably throughout retirement; only 7 percent were not at all confident. Among those who got no right answers, 41 percent were confident in their retirement income and 29 percent said they expect to run out of money.

“This does not mean increased financial literacy is itself a panacea for poor financial well-being,” the report’s authors write in their conclusion. “Clearly, other factors matter, including resources and access to appropriate products and opportunities in the financial system, such as coverage by an employment-based retirement savings plan. But at the same time, an ability to make sound financial decisions matters as well.”