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Most Americans Flunk Retirement Fluency Test

Boomers fare better than younger generations, but correct answers elusive for all ages

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Do you know how much longer the average 65-year-old American can expect to live? Or what share of retirees’ health care costs Medicare typically pays?

If not, join the club. (And to find out, see below.)

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For the latest edition of their annual survey measuring U.S. adults’ financial knowledge, the TIAA Institute and the Stanford-based Global Financial Literacy Excellence Center (GFLEC) included five questions testing respondents’ “retirement fluency” — what they know about core retirement topics such as Medicare, Social Security and workplace savings plans.

The result? A failing grade. Fewer than 40 percent of the nearly 3,900 people age 18 and over who participated in the January 2024 online survey answered three or more of the multiple-choice retirement questions correctly. On average, respondents got two answers right; 1 in 5 got none right.

On the broader, 28-question survey covering a range of money topics, the average rate of correct answers was 48 percent, consistent with past editions of the annual Personal Finance Index. GFLEC and the TIAA Institute, a research arm of financial services firm TIAA, have jointly produced the study since 2017.

The implications are far from academic. According to the report, people with low financial literacy are considerably more likely to be constrained by debt and financially fragile (meaning they could not come up with $2,000 to cover an unexpected need). Those who scored well on the retirement fluency test were more confident about living comfortably in their golden years.

“Now, more than ever, financial literacy is crucial to addressing our very real retirement savings gaps,” said Thasunda Brown Duckett, CEO of TIAA, in a statement on the findings. “This report shows that if we’re going to improve retirement outcomes, we have to start by improving our understanding of how to save and how long our retirements will be.

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.

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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.

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“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.”

Test your retirement fluency

The 2024 TIAA Institute/GFLEC financial literacy study included these five questions gauging respondents’ retirement knowledge. How does yours compare?

1. Which statement about Social Security is false?

A. The amount someone receives in Social Security benefits depends upon his/her earnings during the last two years of full-time employment.

B. A worker receives Social Security benefit payments if he/she becomes disabled before retiring.

C. Social Security benefit payments will continue as long as an individual is alive, no matter how long he/she lives.

D. Don’t know. 

2. On average, Medicare and other government programs cover how much of an individual’s health care expenses in retirement?

A. Over 90 percent.

B. About two-thirds.

C. About one-half.

D. Don’t know.

3. Latisha plans to start saving for retirement by setting aside $2,000 this year. Her employer offers a 401(k) plan and fully matches a worker’s contributions up to $5,000 each year. Under which scenario does Latisha have the largest amount in retirement savings at year-end?

A. She contributes $2,000 to the 401(k) plan and invests the money in a mutual fund that earns a 5 percent return during the year.

B. She contributes $2,000 to an IRA (individual retirement account) and invests the money in a mutual fund that earns a 5 percent return during the year.

C. It does not matter — she will have the same amount of year-end savings either way.

D. Don’t know.

4. Susan worries about living a long life and running out of money. What is the best way for her to address that possibility?

A. Buy an annuity.

B. Buy life insurance.

C. There is nothing she can do about this.

D. Don’t know.

5. [For men] On average in the U.S., how long will a 65-year-old man live?

A. About 14 more years (age 79).

B. About 19 more years (age 84).

C. About 24 more years (age 89).

D. Don’t know.

[For women] On average in the U.S., how long will a 65-year-old woman live?

A. About 17 more years (age 82).

B. About 22 more years (age 87).

C. About 27 more years (age 92).

D. Don’t know.

Answers: 1. A; 2. B; 3. A; 4. A; 5. B, B

Resources to build financial literacy

Financial education and access to trustworthy advice can go a long way toward better understanding your money and making sound financial decisions. These resources can help you increase your knowledge and apply it to planning for retirement.

  • The Federal Deposit Insurance Corporation’s Money Smart program features a suite of interactive games and other tools to help you learn about saving, spending, credit and other everyday financial topics.
  • The National Foundation for Credit Counseling provides financial coaching and other services to help people dig out of debt. It also offers a set of free, online financial-wellness courses.
  • AARP offers numerous resources to help you build financial know-how and create a retirement road map, including:

– Free on-demand webinars on Social SecurityMedicare, and savings and planning.

– Our Medicare Q&A Tool and Navigating Social Security knowledge base, with answers to hundreds of questions about the key government programs serving retirees.

– Online planning tools such as the AARP Social Security CalculatorAARP Retirement Calculator and AARP Money Map budget-builder.

– This Is Pretirement, a collaboration between AARP and the Ad Council that offers saving, investment and tax tips for preretirees and tools for building your own retirement plan.

If it’s an option for you, working with a financial planner or adviser can fill in gaps in your knowledge and help you make informed decisions.

“Get advice on how much to save, how much to allocate as you move into retirement and how you can afford to retire,” says Paul Yakoboski of the TIAA Institute. “You want a working knowledge across the board. Those are big decisions.”

Interview an Advisor, a free tool available to AARP members, can help you vet financial professionals and better understand what they do and how they get paid.

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