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Volume 15, Issue 1
were pre-retirees admitted to being behind schedule when it comes to planning and saving for retirement. Second, when looking at financial assets, the numbers at first blush do not seem sufficient: 40 percent had less than $300,000 in investable assets with another 16 percent having between $300,000 and $500,000. A total of 21 percent had between $500,000 and $1,000,000, while 20 percent had more than one million dollars. However, it is hard to draw conclusions about financial security, as a large percentage (71 percent) had at least $3,000 a month or more of guaranteed income coming from pensions, annuities, or other sources. Many also felt knowledgeable about saving for a comfortable retirement, with 4 in 10 describing themselves as highly knowledgeable. Almost all of the rest identified themselves as moderately knowledgeable. Only 3 percent admitted to not being knowledgeable. Self-reporting did not match the test results, indicating a great deal of overconfidence in this area.
Planning Activity The respondents showed engagement with their finances, as two-thirds indicated taking the time to figure out a savings goal for retirement. A large majority check the status of their investments at least four times a year. Fewer—but still a majority—check as often to see if their income and spending are in balance. Nearly 2 in 3 Americans surveyed have an ongoing relationship with a professional financial advisor. Typically, they talk with their advisor at least twice a year. Nearly half of those with an advisor rely heavily on that advisor to manage their finances and investments. It is interesting, however, that a limited number have a formal, written retirement plan with only about 1 in 4 indicating that they have one. Another finding shows that individuals may not be spending enough time planning for key areas of retirement. For example, only 38 percent of retirees said that they spent a great deal of time calculating their retirement budget. Similarly, only 27 percent indicated spending a great deal of time considering the risks faced in retirement that could undermine retirement security. It is interesting that the survey results showed somewhat more engagement by retirees than pre-retirees. Retirees were more likely to have an advisor (65 percent for retirees and 59 percent for pre-retirees), and were more likely to talk to their advisor two or more times a year (81 percent
for retirees and 69 percent for pre-retirees). This is a surprising result. According to the Society of Actuaries, only 52 percent of pre-retirees have a financial advisor and the number actually drops to 44 percent for retirees (Society of Actuaries, 2013). Retirees were also somewhat more inclined to have a written plan than pre-retirees (30 percent for retirees and 20 percent for pre-retirees).
Impact of Demographics In line with previous studies (Lusardi and Mitchell, 2011), the demographics of the respondents yielded interesting results. The RICP® Literacy Survey gathered data on the respondents’ age, gender, wealth, education, and whether or not they engaged with an advisor for financial planning. While the respondents’ ages did not have a large impact on scores, all of the other demographic classifications identified had high correlations with their knowledge levels. Gender appears to have a large impact on retirement income planning knowledge, as nearly 29 percent of male respondents posted a passing score as opposed to only 11 percent of female respondents. This is a real concern with the increased likelihood for women to become widows in retirement. The lack of retirement income literacy could create additional challenges for women. In addition, nearly 49 percent of female respondents fell into the low fail category, while only 29 percent of men posted low fail scores. The average score for male respondents was 49 percent, while females scored on average 41 percent. The five questions with the biggest disparity in performance between men and women show women underperforming in a number of areas including investment basics, tax treatment, and the cost of annuities.9 Wealth also had a strong correlation to the respondents’ knowledge. Wealth was determined by asking the respondent about his or her total financial assets, excluding the value of the primary residence and the value of a traditional pension plan. The asset level responses were grouped into bands, with individuals with less than $100,000 being terminated in the survey. Scores increased from each asset level range, with individuals in the highest asset range ($1.5 million or more) scoring an average of 52 percent while those in the lowest asset range ($100,000 to $199,999) scored only 41 percent on the knowledge quiz. While the existence of an ongoing relationship with a professional financial advisor was listed in our general 9.
See Table 9.