A whopping three quarters of Americans fail a quiz on how to make their retirement dollars go far enough to see them all the way through retirement, although they think they know what they're doing; 61% of respondents indicate they have high levels of retirement income knowledge.

But—and it's a big but–among those who claim to be highly knowledgeable, only 33% could pass a retirement income quiz.

That's according to The American College of Financial Services, whose RCIP Retirement Income Literacy quiz revealed frightening gaps in workers' knowledge and understanding of retirement income—a clear indication that both plan sponsors and advisors should heed the obvious need for more and better education.

Not only are Americans clueless when it comes to stretching those hard-saved dollars, the study finds that older Americans aged 60–75 with at least $100,000 in assets fail to know enough, for their own good, about such topics such as paying for long-term care expenses, investment considerations or strategies for sustaining income throughout retirement and life expectancy.

Less than 1%, in fact, managed to score an A on the quiz, while 74% got an F.

Just 5% managed a B, 8% a C and 13% a D. And demographics made a difference, even with the dismal percentages displaying understanding of essential retirement issues.

Financial literacy rates varied substantially between men and women, the college educated and the noncollege-educated and between wealthier and less wealthy respondents.

Only 17% of women, for instance, passed, compared with 35% of men; 49% of respondents with over $1 million in assets passed as opposed to 20% of respondents with below $1 million in assets and 40% of those with a graduate degree or more passed, compared with just 9% of respondents without a college degree who passed.

And they're not very savvy about strategies to make those dollars go farther, with just 33% understand that it is more effective to work two years longer or defer Social Security for two years than to increase retirement contributions by 3% for five years just prior to retirement.

And only 45% grasp the concept that a life annuity can protect against life expectancy risk, while 38% of participants in the survey understand the “4% rule” that counsels against taking more than 4% annually from a retirement account lest it be depleted.

And when it comes to long-term care, the picture is even grimmer, with 82% of respondents not expecting that most older Americans will need LTC at some point in their lives.

They're also not knowledgeable about critical facts having to do with LTC itself: only 33% know that Medicaid pays for the majority of LTC expenses provided in nursing homes, while just 30% know that family members—not nursing homes, assisted living facilities, or hospitals—are the ones providing the majority of LTC costs.

Instant Insights /

Americans Get 'F' in Retirement Literacy

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