May 12, 2017 2:09 PM

The 2017 RICP® Retirement Income Literacy Survey once again reminded us that consumers do not know a lot about retirement income planning. Three-fourths of the 60- to 75-year-old respondents who took a 38-question comprehensive quiz did not pass. A passing score was a 60 percent, and the average score was just 47 percent correct.

It is interesting that respondents seemed to think they knew more than they actually did. Of the 61 percent who reported that they were very or extremely knowledgeable about retirement income planning, only 33 percent of that group passed the quiz. It is also interesting that only 22 percent of the respondents who had an advisor passed the quiz, while 34 percent of those without a financial advisor passed the quiz.

Why Education Matters

That do-it-yourselfers performed better may not be surprising – those that make their own decisions need to know more. Still I see the lack of literacy of the advised group as a problem, as I think that an educated consumer will make a better and more satisfied client. With retirement income planning, the financial advisor doesn’t just work up a plan and pass it off to the client for a quick blessing. The client must be involved throughout the process, from goal setting to choosing among alternative plans, to implementation of the plan. Clients must wrestle with thorny, meaningful issues. Deciding when to retire, how to best prepare for frailty that may come in later years of retirement, or choosing when to start Social Security are difficult and life changing decisions. A well-informed client is more likely to make sound decisions that they take ownership in and feel good about. Taking ownership influences the client’s satisfaction in the plan and with the advisor now and in the future. Ownership in the plan matters when the market tanks, when children ask why certain decisions have been made, or when it comes time to recommend the advisor to family and friends.

Options for Educating Clients

So what are some ways to help your clients learn more so that they are better prepared for these tasks? First, have them take the 38-question literacy quiz. After submitting the quiz, they will see their results along with feedback for each question. This can be a fun way to learn.

Another is to encourage your clients to watch the following videos made for consumers in which Anna Rappaport and I talk about three important retirement concerns.

Choosing an Annuity or a Lump Sum from an Employer's Pension Plan:

Dave Littell on choosing an annuity or a lump sum from an employer's retirement plan.

Here we talk about the important factors to consider when a retiree is choosing whether to take a lump sum or an annuity from a traditional employer-provided pension plan. This decision may come up again later in retirement as many companies have offered pension buy-back programs.

When Retirement Comes Too Soon:

Anna Rappenport and Dave Littell discuss the types of events that can result in retiring earlier than planned and the implications of this happening.

This video focuses on an issue that many pre-retirees don’t plan for—the possibility that an older worker may face retirement earlier than planned. It helps consumers understand some common situations that come up, from being offered an early retirement package from a company that is downsizing to making the choice to give up a job to care for a loved one.

Experiencing Change in Retirement:

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This video discusses an important topic – helping consumers plan for different stages of retirement. Too many plan only for the early go-go years of retirement. This discussion reminds pre-retirees of all the phases of retirement.

Additional Retirement Information

Each of these videos also provides a link to a “decision brief” on the same topic created by The Society of Actuaries Committee on Post-Retirement Needs and Risks. That group maintains a series of educational pamphlets on these three topics as well as others called “Managing Retirement Decisions” that are meant to help retirees make better informed decisions about critical retirement issues. These are terrific pieces that help consumers identify issues that need to be considered to make good decisions. They don’t provide answers – they are meant to help consumers frame the issues. They can be a great support for financial advisors trying to help their clients better understand the decisions that they face.

This blog is part of a series by Professor David Littell, Director of the RICP® program and Co-director of The American College New York Life Center for Retirement Income. Each post in this series features a video or videos from the Center offering valuable retirement income planning tips for advisors and their clients. Many of the experts in these videos are featured in the RICP® program curriculum. 


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