A recent report from the American College illustrates the lack of information and knowledge most Americans have when it comes to their financial lives.
This can become a significant problem for those working towards a retirement that has enough funds to make the “golden” years “golden.”
The simple fact that so many Americans are misinformed and poorly educated when it comes to finances is amazing. According to the report (link below), the areas of concern have to do with overall knowledge, steps to accumulation, and basic knowledge about investment products.
Ignorance of the most basic of information becomes a huge roadblock when it comes to proper planning. One fundamental discovery of the survey was that over ½ have underestimated life expectancy when the calculation of income levels. People have no clue how long they could live nor how much per year is a safe amount to withdraw from their retirement account.
The general consensus of those surveyed thought that investing in bonds would provide the safest mode for retirement fund safety, and yet on 39% of them knew the relationship between interest rates in general and how changes would affect the value of their bond holdings.
Social Security planning also was an area of misinformation and understanding of what benefits are available. Only 54% knew that every year you delay until claiming Social Security, the retirement income would be higher.
When it comes to annuities, the survey clearly showed how poorly educated people are about the benefits annuities can provide:
- Only 13% knew that an annuity could continue to pay income for as long as a person lived, regardless of how long they live.
- The majority also thought that if a person died early, the insurance company would win because they were able to keep all the unused money.
Clearly, we as an industry must do better to educate our clients and prospects. It is an eye-opener to understand how many people have such a cloudy understanding of their financial situation and the options available.