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Home Financial Planning

TIAA Institute: Older Americans lag in retirement fluency

by TheAdviserMagazine
4 months ago
in Financial Planning
Reading Time: 4 mins read
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TIAA Institute: Older Americans lag in retirement fluency
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Most Americans intend to retire eventually, but few have the knowledge to address the major challenges that often trouble retirees, according to a new survey from the TIAA Institute and the Global Financial Literacy Excellence Center.

The study, which surveyed more than 3,300 Americans, found that the average U.S. adult couldn’t answer a majority of retirement-related questions. Survey respondents were asked six questions in total, ranging in topic from long-term care needs to lifetime income.

On average, respondents answered just 2.2 questions correctly, or 37% of the questions. Fifteen percent of adults surveyed couldn’t answer a single question correctly.

READ MORE: For Gen Z, retirement feels out of reach. Can advisors bring it closer?

Interested in seeing the survey for yourself? Take the quiz below to see how you stack up against the average American.

quiz visualization

An opportunity to educate

Financial advisors say that lack of knowledge can create problems for Americans looking to retire. But it also presents an opportunity for planners in the wealth management industry.

“What I think a planner should do is really focus on education and making sure the client understands things,” said Charles “Chuck” Failla, the founder of Sovereign Financial Group in Stamford, Connecticut. “My job is not to say ‘Here is the absolute right thing to do,’ because it’s rarely that clear. But instead, it’s to say, ‘Here’s option A and B, or maybe C, and here’s the pros and cons of each one of those.’ And if I do my job correctly, then the client, even without decades of financial experience like I have, should be able to make the decision. … And that only comes with education.”

READ MORE: Ask an Advisor: Is my Social Security strategy outdated?

Educating a client on the different options available to them is a crucial part of the job for Failla, but he said that he also doesn’t expect clients to become experts themselves.

“I could become an expert on drywall, but I have no interest in that, so I hire people. Like, that’s not what I want to learn,” Failla said. “It’s all learnable stuff. But you have to understand, if someone’s coming to your office, by definition, they’re not … as financially literate as you are.”

Even for people who would prefer to pay someone to handle their financial planning, Failla said that educating a client on the “why” behind certain decisions and behaviors is crucial to ensuring they stick to the plan.

“What type of discipline will that client have if they don’t understand why they’re doing it, right?” he said. “Education kind of helps them do the right thing, which is, stay the course.”

Addressing the biggest blind spots

In the survey, roughly three-quarters of respondents couldn’t correctly answer questions about long-term care costs and Medicare coverage. Those numbers aren’t promising, but they might be improving among older Americans. 

“I think we’re seeing a much higher acceptance level of people understanding that they’re going to need care. And like anything, it’s driven by experience,” said Byrke Sestok, a financial advisor at MONECO Advisors in Fairfield, Connecticut. “More and more people that are in their 40s, 50s, 60s, have now been in the position of having to care for an elderly person in their family … and now they’re going, ‘Well, I know that happened with Mom and Dad, so it’s definitely going to happen to me, right?’ So, the denial I find is leaving as our generations get older because people are living it.”

Still, clients can understand the importance of preparing for something like long-term care needs, but that doesn’t mean they’re equipped with the information to actually do it. That’s where advisors come in, Failla said.

“I give them the options, and this is an A, B or C option. So, pay for it yourself, pay for it with insurance or let the state pay for it on Medicaid,” he said. “And there’s, of course, pros and cons to each one of those, right? And we walk them through that to the point they can make their own decision.”

READ MORE: The 10 cities where retirees receive the highest income

Navigating those options can become complicated, especially for clients who aren’t in an ideal financial situation, Sestok said.

“If you are not in, like, the total green zone, and you’re in that yellow zone where you’re probably going to have long-term care costs, but you’re probably not going to be able to foot the whole bill, then I think there’s a real and honest conversation about, ‘How do we implement long-term care insurance within your financial situation?'” he said. “It’s always better to have some insurance than zero.”

Clients can certainly benefit by learning more about the options available to them when it comes to something like long-term care, but few people are equipped to effectively make those related financial decisions on their own, Sestok said.

“Retirement in general and long-term care specifically, I don’t think it’s a topic that people should try to assess themselves, unless they really have taken the time to learn a lot about the topic,” he said. “They should consult a professional.”



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Tags: AmericansFluencyInstitutelagOlderretirementTIAA
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