Three in four retirement-age Americans fail a quiz on how to make their nest eggs last throughout retirement. Even more troublesome, older Americans between the ages of 60 to 75, with at least $100,000 in assets, display a worrying lack of knowledge on a variety of vital topics such as paying for long-term care expenses, investment considerations, strategies for sustaining income throughout retirement and life expectancy.

These findings are part of the new RICP Retirement Income Literacy Survey from The American College of Financial Services.

Retirement Income Literacy: Failing Grades

“Over the next 12 years, an estimated 10,000 Baby Boomers will reach the age of 65 every day,” said David Littell, Retirement Income Program Co-Director at The American College of Financial Services. “More and more Americans are retiring but so few understand basic facts and strategies when it comes to ensuring that their retirement is a comfortable one. The results of this survey are alarming and a stark reminder of the need to be prepared for the decades in retirement when you are not earning a steady stream of income.”

Americans believe they know a lot more than they do when it comes to retirement income literacy. Although the majority of them fail the quiz, most are also confident about their retirement income knowledge. Almost two thirds (61%) of respondents indicate they have high levels of retirement income knowledge. Of those who claim to be highly knowledgably, only 33% could pass the quiz.

The Demographic Divide

There are significant differences in literacy rates between men and women, college educated and non-college educated, and between wealthier and less wealthy respondents.

• Only 17% of women passed the quiz as opposed to 35% of men
• 49% of respondents with over $1 million in assets passed, as opposed to 20% of respondents with below $1 million in assets
• 40% of those with a graduate degree or more passed, as opposed to just 9% of respondents without a college degree who passed

Respondents lack knowledge of the strategies that are the most effective in improving retirement security.

• Only 33% understand that it is more effective to work two years longer or defer Social Security for two years than to increase retirement contributions by 3% for five years just prior to retirement
• Fewer than half (45%) recognize that a life annuity can protect against life expectancy risk.
• Only 38% of participants know that 4% is the amount they can afford to “safely” withdraw per year from a retirement account.

Long-Term Care: Out of Sight, Out of Mind

Very worrying is the fact that a majority (82%) of respondents do not expect that most older Americans will need long-term care at some point in their lives. When considering long-term care, respondents lack knowledge in several critical areas:

• Just one in three (33%) know that Medicaid pays for the majority of long-term-care expenses provided in nursing homes.
• Just 30% know that family members – not nursing homes, assisted living facilities, or hospitals – provide the majority of long-term care costs.

Power of Retirement Literacy

Retirement literacy rates appear to correlate with better retirement planning, since those with higher scores are more likely to have plans in place. Respondents who passed the quiz were:

• 46% more likely to have a long-term care plan in place
• 36% more likely to feel confident they could manage their own investments throughout retirement
• 16% more likely to have a written plan in place

The American College commissioned Greenwald & Associates for the study. Respondents were asked a number of knowledge, behavior and attitudinal questions about retirement income planning. Information for this study was gathered through online interviews conducted between February 16 and March 1, 2017. A total of 1,244 Americans were interviewed. To qualify for participation in the study, respondents had to be between the ages of 60 and 75 and have at least $100,000 in household assets, not including their primary residence.

The American College