Women can improve their retirement income literacy
Be active, have a plan and don’t be afraid to ask for help if needed
If Sam Cooke were alive today, he might have to add a new line to his song Wonderful World. He might have to add, though it doesn’t quite roll off the tongue, this sentence: Don’t know much about retirement.
That’s right. About three in four (74%) Americans failed a 38-question retirement literacy quiz published as part of a survey by the American College of Financial Services New York Life Center for Retirement Income. In fact, respondents to the survey answered on average slightly less than half the questions correctly.
To be fair, older Americans do know some things about retirement, according to the survey. For instance:
Majorities answered housing questions correctly.
Most older Americans are knowledgeable about Medicare issues.
Older Americans are also more apt to understand the principle of inflation.
But one of the more worrisome findings is the retirement literacy of women as compared to men. Only 18% of women passed the retirement literacy quiz compared with 35% of men. So, what can women do to become knowledgeable about money?
Take an active role. Women, regardless of their marital status — single, divorced, widowed or married — should take a more active role in their financial lives, says Marguerita Cheng, chief executive officer at Blue Ocean Global Wealth. “I also stress the importance of financial well-being,” she says.
Get smart. Taking a more active role in your financial life will require learning as much as possible about money. By doing so, Cheng says women will gain more clarity, confidence and control. “Clarity about what’s important to them and their choices,” she says. “The confidence to plan and a sense of control.” In particular, women ought to focus on topics such as preserving assets and sustaining retirement income, the best strategy to improve retirement security as they approach retirement, investments, long-term care, Social Security and annuities.
Do you have a retirement
budget? Determine what your spending plan is today and compare it to what it may be in retirement, says Rianka Dorsainvil, founder and president of Your Greatest Contribution. Doing this will help you learn how much income you’ll need in retirement.
Where’s your income coming from in retirement? Besides getting a handle on your expenses, determine what income you should expect during retirement, Dorsainvil says. “Ideally, you would want multiple streams of income, whether it comes from Social Security, earned income, a pension or distributions from your assets in your retirement accounts,” she says.
Part of this exercise also requires taking stock of all your assets, including taxable, tax-free, and tax-deferred accounts, HSAs, cash-value life insurance and the equity in your home.
Take advantage of free resources. If you’re employed, you likely have access to plenty of educational resources and workshops that your company may offer prior to retirement, Dorsainvil says. Take advantage of those resources as well as those offered by the financial services firms that custody your accounts.
Get professional help. Dorsainvil also suggested working with a certified financial plan-
Women, regardless of their marital status, should take a more active role in their financial lives, says Marguerita Cheng, below, chief executive officer at Blue Ocean Global Wealth.
ner who can provide advice specific to your financial situation. You can find a certified financial planner at the CFP Board and the Financial Planning Association’s websites.
Don’t confuse overconfidence with knowledge. According to the survey, 61% of respondents reported that they were very or extremely knowledgeable about retirement-income planning, but only
33% of them could pass the literacy quiz, with a mean score of
51.87%. Translation: Don’t just think you’re financially literate. Prove it.
The other finding of note from the survey: The smarter you get about money, the more likely it is you’ll have a retirement plan.
“Literacy rates appear to correlate with better retirement planning as those with higher scores were more likely to have a written plan and a long-term care plan in place,” the study said.
The study also noted that women and older Americans should recognize that retirement-income planning is specialized knowledge that goes beyond understanding basic financial principles.
“Ideally, you would want multiple streams of income, whether it comes from Social Security, earned income, a pension or distributions from your assets in your retirement accounts.” Rianka Dorsainvil, above, founder and president of Your Greatest Contribution