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Financial Planning Insights

Are you financially literate?

By Robert Warner | Johnson Financial Group

3 minute read time

The results of the 2017 Retirement Income Literacy Survey published by the New York Life Center for Retirement Income at The American College reveals some disconcerting news about investors approaching or recently entering retirement. Conducted among 1,244 Americans between the ages of 60 and 75 with at least $100,000 in investable assets, the study gauged knowledge on 38 key retirement topics. It found a significant lack of financial literacy, with only 26% of respondents having received a passing grade.

The years leading up to retirement and just entering retirement are critical for investors seeking a comfortable retirement. Key decisions made at this time can impact the amount of retirement income for the rest of one's life. Common mistakes can easily undermine long term plans.

The survey suggests Americans demonstrate a lack of knowledge in a number of key areas:

  • Strategies to preserve assets in retirement
    • Only 38% of those surveyed knew that, as a rule of thumb, $4,000 (or 4% of a portfolio) is the most they should withdraw from a $100,000 portfolio per year.
    • More than half also underestimated the life expectancy of a 65 year old male (it is 85), and may not realize how long their assets may need to last.
  • Strategies to improve the chances of financial security
    • Only 33% are aware that working longer and deferring Social Security is an effective way to increase retirement income.
    • Only 59% understand social security benefits increase each year one delays claiming Social Security, up to age 70.
    • 55% realize it is best to wait until 70 to claim Social Security benefits, especially if one expects to live to 90.
  • Basic knowledge of investment products – Many lacked a basic understanding of the relationship between interest rates and the value of bonds.
    • Only one third know that when rates rise, the value of their bond funds will go down. Few understand the relative returns or costs of various types of investments.
  • Understanding Long Term Care
    • Only 18% of respondents knew that 70% of the population will need long term care—formally defined as “assistance with activities of daily living.”
    • Only 33% know Medicaid pays for the majority of long term care expenses provided in nursing homes
    • Only 30% know that families, not nursing homes, assisted living facilities or hospitals provide the majority of long term care
  • Other results worth noting:
    • Importance of a financial plan – Only 34% of all respondents have a written retirement plan
    • Knowledge about retirement income planning – 61% reported they were very or extremely knowledgeable about retirement income planning, yet 74% failed the 38 question retirement literacy quiz, with only 5% receiving a B or higher.

While the pilots I've worked with tend to be savvier than this survey suggests, the findings confirm the advice we've shared repeatedly. We encourage our readers to do all of the following:

  1. Have a comprehensive financial plan. Revisit the plan at least annually. 
  2. Estimate how much you are going to need to retire.
  3. Assume you will live longer than you think.
  4. Think carefully about social security, and if you can afford it, postpone taking social security until age 70.
  5. Have a well‐diversified portfolio with investments spread across a number of assets classes. This will not only help maximize results, it will help reduce risk.
  6. Work with a financial advisor, and if you don't understand an investment or strategy, ask the advisor to teach you about it.

In our view, careful planning in the 10 to 15 years leading up to retirement can really make a difference in how much you will have in retirement and how long your nest egg will last.


Robert Warner

Robert Warner

Managing Director, The Pilot Program | Johnson Financial Group

Robert Warner is Managing Director, The Pilot Program, Johnson Financial Group and EVP Johnson Wealth, a Johnson Financial Group Company. He is also a Chartered Financial Consultant (ChFC®). He has over 25 years experience helping clients, including active pilots and their families achieve their retirement and estate planning goals with an emphasis on estate conservation and wealth transfer planning.

Johnson Financial Group and its subsidiaries do not provide tax advice. Please consult your tax advisor with respect to your personal situation. Wealth management services are provided through Johnson Bank and Johnson Wealth Inc., Johnson Financial Group companies. Additional information about Johnson Wealth Inc., a registered investment adviser, and its investment adviser representatives is available at NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE