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Financial Literacy Month Offers Chance to Boost "Retirement IQ'

Financial Literacy Month Offers Chance to Boost "Retirement IQ'

April 04, 2022

As National Financial Literacy Month kicks off with the turn of the calendar page to April, a new survey has found Americans could really use a boost to their “Retirement IQ.”

According to a survey by the Insured Retirement Institute (IRI), Financial Literacy Month presents a much-needed opportunity for consumers to brush up on their financial smarts.

IRI’s “Retirement Readiness Among Older Workers” report found only 26% of respondents correctly estimated how much annual income would be required in 10 years to maintain their standard of living when the annual inflation rate is 3%.

“Understanding the erosive effect of inflation on spending power is critically important for planning to enjoy a secure retirement,” said Frank O’Connor, IRI Vice President, Research. “And consumers need to understand the importance of having a portion of retirement investment portfolios in risk assets that have a better chance of keeping pace with inflation than ’safe’ investment options.”

O’Connor noted that investing part of retirement savings in annuities can provide a stream of protected monthly income that can help cover essential expenses with another portion of savings invested to generate growth.

The survey also revealed that nearly seven in 10 respondents did not understand sequence of returns risk, the concept that it is preferable to experience a significant market correction late in retirement versus near the outset when one is taking regular withdrawals for retirement income.

“Failing to consider sequence of returns risk immediately before or at the early stages of retirement could have a significant, negative long-term impact on retirement savings that ultimately results in the exhaustion of financial assets while income is still needed,” O’Connor said.

Survey respondents fared better on knowing the average Social Security monthly retirement benefit. Forty-two percent of respondents answered correctly with $1,500 per month. However, four in 10 respondents overestimated the average monthly Social Security benefit.

“This is another area where workers would benefit from having a relationship with a financial advisor who can help them understand how much they can expect to receive from Social Security and develop a strategy to maximize benefits,” O’Connor said.

Only a minority of survey respondents—fewer than three in 10—could correctly calculate the monthly income that can be safely withdrawn from a diversified investment portfolio.

“Failing to understand the amount of monthly income that retirement savings can generate could lead to overly optimistic retirement income expectations and hasten the depletion of retirement funds,” O’Connor said. “This also points to another benefit of annuities: using a portion of savings to lock in lifetime income is a disciplined way to deploy assets and guard against overspending.”

O’Connor said that financial literacy and retirement planning fundamentals are critical to securing one’s financial future. “In addition to gaining a firm understanding of retirement planning essentials, consumers should engage with a financial professional to develop a retirement plan with strategies for generating protected income that cannot be outlived.”

About Financial Literacy Month

National Financial Literacy Month came into being in 2004 with a Senate Resolution that targeted raising public awareness about the importance of financial wellness and the serious negative consequences of lacking key money management skills.

Since then, national partners, state coalitions, and non-governmental organizations have come together each April to promote events and initiatives that increase awareness about the benefits of improving the nation’s financial health.

Throughout the month, organizations across the country collaborate to present a host of events, challenges, and celebrations, all designed to help improve financial literacy.

The National Financial Educators Council (NFEC) conducts a variety of initiatives throughout the month to promote financial literacy and wellness. For example, Teach Children to Save Day will be observed on April 22 this year. This day is set aside to give kids the opportunity to learn new ways of handling and understanding money. Research has shown that when children learn the value of saving money at an early age, they are more likely to mature into financially healthy adults.

Don’t forget National Tax Day, which in 2022 falls on Monday, April 18. Tax Day is the deadline to get federal and state tax returns in the mail before the U.S. Post Office closes for the day, or to file them electronically.

Finally, Financial Educators Day (FED) takes place the last Friday of each April, which falls on the 29th for 2022. The National Financial Educators Council (NFEC) issues awards to excellent financial educators in the U.S. and worldwide. The NFEC has been awarding this recognition since National Financial Educators Day was established in 2014. Since then, over 900 outstanding personal finance teachers have been recognized.