The Need for Retirement Literacy
A recent survey by TIAA and the Global Financial Literacy Excellence Center (GFLEC) reveals that U.S. adults struggle with understanding retirement-related topics, scoring an average of only 48% on financial literacy questions. This low level of retirement fluency is concerning for financial well-being in retirement.
Survey Insights
- Financial Literacy Scores: Since the survey's inception in 2017, U.S. adults have consistently answered around 50% of the financial literacy questions correctly. In 2024, the average score was 48%.
- Demographic Disparities: Financial literacy varies significantly among different demographic groups. Women scored 10 points lower than men, Black and Hispanic Americans scored lower than Asian and white Americans, and Gen Z respondents correctly answered only 37% of the questions.
Retirement Fluency
The survey included five questions to assess basic retirement knowledge, focusing on Social Security, Medicare, employment-based savings, lifetime income, and life expectancy. Key findings include:
- Medicare and Life Expectancy: Only 30% understood Medicare's coverage of health care expenses, and 32% knew the average life expectancy at retirement age.
- Annuities: Over half (53%) knew that annuities provide lifetime income.
- Overall Fluency: On average, respondents answered two out of five retirement questions correctly, with only 4% answering all five correctly.
Impact on Retirement Confidence
Retirement fluency is linked to confidence in financial security during retirement. Among those who answered four or five questions correctly:
- 26% felt very confident about their retirement income.
- 7% were not confident at all.
Financial Literacy and Wellness
The survey highlighted the broader impacts of financial literacy:
- Debt and Financial Fragility: Those with low financial literacy are twice as likely to be debt constrained and 3.5 times more likely to be financially fragile.
- Emergency Savings: Over four times as likely to lack sufficient emergency savings.
- Retirement Confidence: More than three times as likely to be not confident about retirement income.
- Time Spent on Financial Issues: Six times more likely to spend over 20 hours a week dealing with personal finance problems.
Policy and Education Recommendations
The report suggests targeted initiatives to improve financial literacy, especially for Black and Hispanic workers. Employers should enhance education on topics like Medicare, longevity, and retirement income. Authors Paul Yakoboski, Annamaria Lusardi, and Andrea Sticha emphasize the need for tailored financial education programs to address these gaps.
Improving retirement fluency is essential for ensuring financial security and well-being in retirement. Enhanced education and targeted initiatives can help bridge the knowledge gap and support better financial decisions for all Americans.
