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When it comes to retirement, knowledge truly is power. The more you understand your financial situation, the better you can navigate the complexities of retirement planning and make informed decisions. In this week’s episode of the Retirement Revealed podcast, Chet Bennetts–program director of the CFP®/ChFC® Program at The American College of Financial Services–shared his insights from a comprehensive survey of over 3,700 people about their retirement knowledge. The findings were eye-opening, but they also provided guidance for what knowledge is lacking or obscured for the average retiree or near-retiree.
What Do We Know About Retirement?
One of the key takeaways from Chet’s research is that Americans are quite knowledgeable about inflation and housing—two critical factors that heavily influence retirement outcomes. It’s encouraging to see that people are aware of how inflation can erode purchasing power and the importance of managing housing costs as they age. As Chet pointed out, these are areas where individuals have a significant amount of control, and it appears that many are making smart decisions to adjust their spending and housing situations in response to economic challenges.
This resilience in the face of inflation and rising housing costs is a positive sign. It shows that when retirees encounter financial obstacles, they often find ways to adapt and thrive. For instance, I recall working with a client about ten years ago who was eager to retire at 55. We ran the numbers, and the reality was that their income would drop by about 70% if they retired immediately. Despite this, they decided to go ahead with their plan. They made significant lifestyle adjustments, including taking on part-time jobs, which helped boost their income slightly. Today, nearly a decade later, they’re enjoying retirement and living comfortably on a reduced income. This experience highlights how important it is to be flexible and willing to make changes when necessary.
Areas for Improvement: The Gaps in Retirement Knowledge
While the survey showed that Americans are knowledgeable in some areas, it also revealed significant gaps in others. The topics where people scored the lowest included annuities, investments, long-term care, life expectancy, how to generate retirement income, and taxes. These are all critical components of a successful retirement strategy, and yet, they are the areas where many people feel least confident.
This lack of knowledge is concerning because these topics play a major role in ensuring financial security in retirement. For example, understanding annuities and how they can provide a steady income stream is crucial, as is knowing how to manage investments to avoid outliving your savings. Long-term care is another area that is often overlooked, but it’s a significant expense that can quickly deplete retirement funds if not planned for properly.
However, the good news is that these are precisely the areas where a good financial advisor can add value. Working with an advisor who can educate you on these topics and help you develop a comprehensive retirement plan can make a world of difference. As I always say, if you’re looking for a financial advisor, find one who prioritizes education. The goal should be to empower you with the knowledge you need to make informed decisions, not to overwhelm you with complexity.
Addressing Demographic Disparities in Retirement Literacy
The survey also uncovered some demographic disparities in retirement literacy. For example, there was a five-point gap in retirement literacy between men and women, and a seven-point gap between different racial and ethnic groups. This is unfortunate but not entirely surprising, given the historical and societal factors that have contributed to these disparities. However, these gaps can be overcome through targeted education initiatives and by working with a financial advisor who understands the unique challenges faced by different demographics.
One promising finding from the survey was that working with a financial advisor can significantly boost retirement literacy. There was an 11-point increase in literacy among those who worked with an advisor compared to those who did not. This underscores the importance of seeking professional guidance when planning for retirement, especially if you’re feeling uncertain about your financial knowledge.
Practical Steps to Improve Your Retirement Readiness
If you’re looking to improve your retirement readiness, there are several steps you can take. First, consider taking advantage of education initiatives designed to boost financial literacy. For example, Thrivent offers a program called “Money Canvas”, which provides free budgeting sessions. Another excellent resource is Dave Ramsey’s Financial Peace University, which offers comprehensive financial education.
Second, don’t hesitate to seek out a financial advisor who can help you navigate the complexities of retirement planning. A good advisor will take the time to explain your options, help you understand the risks and benefits of different strategies, and work with you to create a plan that meets your unique needs.
Finally, remember that retirement is a journey, not a destination. Your needs and circumstances will change over time, so it’s important to stay informed and be willing to adjust your plan as needed. By taking proactive steps to increase your financial literacy and working with a trusted advisor, you can feel more confident about your retirement and make better decisions that will lead to a secure and fulfilling future.
The road to retirement is filled with challenges, but it’s also full of opportunities. By learning more about your money, you’ll feel better about your financial situation and be better equipped to make the right decisions for your future.
Related: How To Prepare for a Market Crash Early in Your Retirement