How Retirement Fluency and Retirement Confidence Go Hand in Hand

An annual study that assesses Americans’ level of financial literacy finds a strong connection between people’s retirement fluency and how financially prepared they are for retirement.

Image: Shutterstock.comFor instance, Americans correctly answered an average of only 40% of the retirement-related questions. And among people with that level of retirement fluency, only 60% were confident they would have enough money to live comfortably throughout retirement. But for those who answered at least 80% of the questions correctly, this figure jumped to 75%.

These findings are from the 2024 TIAA Institute-GFLEC Personal Finance (P-Fin) Index—the 8th edition of the annual report, which for the first time also covered “Retirement Fluency.” The benchmarking term, which apparently has been trademarked by the organizations, measures how much people know about topics, such as Social Security, Medicare and options for retirement savings.

The Retirement Fluency portion of the study consisted of five multiple-choice questions. For most of the questions, nearly a third of respondents (30%) answered, “don’t know.” Very few (4%) were able to correctly answer all five questions. On net, the share of adults who correctly answered none of the retirement fluency questions (19%) matched the share who correctly answered 80% or more (17%).

Not surprisingly, the generations closer to and in retirement were more knowledgeable on the retirement-related topics covered. Still, only about half of the questions were answered correctly by Baby Boomers and the Silent Generation, signaling reason for concern, the report notes.

And many mistakes stood out, according to TIAA. For example:

  • Most respondents failed to recognize that a retirement savings opportunity with an employer match is better than one without the match.
  • Only about half (53%) were aware that buying an annuity could offer guaranteed lifetime income, safeguarding against the risk of outliving retirement savings. Others answered that buying life insurance would help or that nothing could be done.
  • Almost 60% of respondents did not know that Social Security benefits last for a lifetime and that workers receive benefits if they become disabled before retiring.
  • A vast majority lacked a basic understanding of how long people tend to live in retirement, a knowledge gap that could keep them from saving enough money to last a lifetime. Almost 60% said either they didn’t know, or they underestimated the life expectancy of a 65-year-old. Only a third of respondents (32%) knew the correct answer: age 84 for men and age 87 for women.
  • About 30% were aware that Medicare covers about two-thirds of retirees’ health care costs.

“Now, more than ever, financial literacy is crucial to addressing our very real retirement savings gaps,” TIAA CEO Thasunda Brown Duckett stated. “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. While there are no quick fixes to boosting our Retirement Fluency, increasing access to education resources and operating with intentionality will get us on the road toward financial health and resilience,” she added.

Financial Literacy Lacking

The annual report also included data about Americans’ knowledge of personal finance. Based on a 28-question survey, people correctly answered about half of those questions, which TIAA notes has been the norm since the survey began.

All told, only 16% demonstrated a “very high level” of financial literacy by correctly answering at least 22 questions, underscoring concerns about people making financial decisions with a poor level of financial literacy.

The P-Fin Index also makes clear the importance of financial literacy for financial well-being. Compared with those with a very high level of financial literacy, for instance, those with a very low level are twice as likely to be debt-constrained, four times more likely to lack one month of emergency savings and three times more likely to not have any confidence in their retirement income prospects.

“The consistently low levels of financial literacy among U.S. adults and, particularly, among the most vulnerable groups in the population is troubling,” emphasized Annamaria Lusardi, an economist from Stanford University and GFLEC. “These findings are a call to action. With financial literacy month underway, it is high time to change the conversation about money, starting with adding financial education in school and college,” she further stressed. 

The full report can be downloaded at the TIAA Institute’s website.

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