Older Americans may be ready for retirement, but their finances? Not so much.
Almost 75% of Americans in retirement age failed a retirement literacy quiz hosted by the American College of Financial Services, which asked how to make money last through their golden years. Questions included when a loan has to be repaid on a reverse mortgage or when the best time is for a 90-year-old to claim Social Security benefits. Less than 1% earned an A, 5% earned a B, 8% earned a C and 13% earned a D. More than 1,200 Americans between the ages of 60 and 75 were interviewed, and had at least $100,000 in household assets.
Having little understanding of retirement concepts and strategies can be detrimental to a person’s finances — some may not save as much as they need to, or they may lose out on potential benefits. “People who understand this better have better retirements because they had better planning in place,” said Jamie Hopkins, the retirement income program co-director at the American College of Financial Services, based in Bryn Mawr, Penn.
Though 61% said they had high levels of retirement income knowledge, only a third of them passed the quiz — in total, 17% of women passed, versus 35% of men; 40% of people with graduate degrees passed, compared with 9% of respondents who didn’t have a college degree; and 49% of people with more than $1 million in assets, compared with 20% of those with less than that. Many respondents did not know the best strategies to claim Social Security, how a life annuity could help, or how much could be “safely” withdrawn from an account. Long-term care concerns were also an issue for participants.
Retirement savings can be a touchy topic for some folks — the U.S. outranks most countries in retirement preparedness, according to the Aegon Retirement Readiness Index (with a score of 6.7 out of 10), but only 26% had written retirement plans in place in 2016 and few Americans had backup plans, the study showed. Nearly all respondents agreed individuals need to save for their own retirement, but thought employers should offer plans, according to the survey. Still, only one-third of Americans are contributing to an employer-sponsored retirement account. What’s worse, even if they are investing in such an account (or any other type of investment account), they may not know what’s going on in there: 40% of Americans don’t know how their portfolios are allocated, and lack of knowledge can mean too many fees or the wrong risk tolerance (both of which can hurt or misalign the portfolio with the investor).
Of course, there are steps any near-retiree could take to get in financial shape for retirement. Experts suggest working as long as you can if you’re healthy and capable, which can help you save more money and postpone claiming benefits. Know what you’re entitled to (with Social Security, you can claim your spouse or former spouse’s benefits, for example), and maximize those benefits by claiming at the right time. Also, figure what your lifestyle will look like in retirement — and how much it would cost — and create a budget, said Dan McElwee, executive vice president of Ventura Wealth Management in Ewing, N.J.
And lastly, don’t give up. “People feel this inertia that if they haven’t been saving their entire lives, they feel it’s too late now,” McElwee said. Though compound interest makes saving early on significantly more lucrative, it’s never too late to start saving. “We want to encourage people no matter where they are, just graduating college or approaching retirement, to make contributions all the way through.”
Source by:- marketwatchShare: