Boosting Retirement Fluency

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A new survey by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) reveals a significant link between Americans' understanding of retirement topics, termed "retirement fluency," and their confidence in retirement planning. The study highlights critical gaps in knowledge that could affect financial security in retirement.

Survey Insights

• Retirement Fluency Scores: On average, Americans correctly answered only 40% of retirement-related questions, revealing a need for enhanced financial literacy.
• Knowledge Gaps:
  • Many respondents failed to recognize the benefits of employer-matched retirement savings.
  • Only 53% knew that annuities offer guaranteed lifetime income.
  • Almost 60% were unaware that Social Security benefits last a lifetime and cover disability.
  • Only 32% knew the average life expectancy for retirees.
  • About 30% understood that Medicare covers approximately two-thirds of retirees' healthcare costs.

Implications for Retirement Confidence

The 2024 TIAA Institute-GFLEC Personal Finance Index (P-Fin) highlighted that respondents with higher retirement fluency felt more prepared for retirement:

• Confidence Levels: Only 60% of those who answered 40% of the questions correctly felt confident about their retirement savings, compared to 75% of those who answered 80% correctly.

Broader Financial Literacy Trends

The P-Fin Index also examined general financial literacy:

• Overall Scores: Americans correctly answered about half of the 28 financial literacy questions.
• High Literacy Levels: Only 16% of respondents demonstrated a very high level of financial literacy by correctly answering at least 22 questions.
• Financial Struggles: Those with low financial literacy are more likely to be debt-constrained, lack emergency savings, and have low confidence in their retirement prospects.

Enhancing Financial Literacy

Brian Haney, founder and CEO of The Haney Company, emphasizes the need for improved financial education, starting in schools. He points out that most Americans are not taught financial concepts formally, leading to poor financial habits in adulthood. Haney advocates for financial professionals to take an active role in educating the public and supporting financial literacy initiatives.

Steps to Improve Retirement Fluency

To enhance clients' retirement fluency, Haney suggests a two-track approach:

1. Holistic Financial Understanding: Advisors should help clients view their financial picture comprehensively, covering banking, saving, lending, and investing.
2. Building Good Habits: Encouraging clients to develop strong saving habits and better money management practices is crucial. Financial professionals should act as coaches, helping clients overcome mental and emotional barriers to effective financial planning.

By improving financial literacy and fostering good financial habits, advisors can help clients achieve greater confidence and security in their retirement plans.

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