Recently, The American College of Financial Services conducted a survey to test the average American’s retirement income planning literacy. Only 19 percent of respondents passed the quiz with a score of 60 percent or higher. In a recent post titled 6 Disturbing Findings From America’s Failed Retirement Quiz, we reviewed some of the most surprising facts uncovered by the quiz. Below, we will detail the possible implications and resulting recommendations for financial advisors to consider in light of the results. 

Student oblivious to retirement income planning literacy

Retirement Income Quiz Results in a Nutshell

To recap the survey results:

  • Respondents performed very well on the two questions used to test basic financial literacy
  • Respondents were shown to have significant engagement with their finances
  • Two-thirds of respondents reported having an ongoing relationship with a professional financial advisor
  • Two-thirds of respondents have taken the time to figure out their retirement savings goals and work hard to stay on top of the performance of their investments, checking the status at least four times each year

Since these results paint a rather glowing picture of Americans’ financial literacy, why did the majority of Americans fail the retirement income planning survey?

The Devil in The Details

Upon closer inspection of the respondents’ engagement, two key questions arise:

  1. Are Americans taking enough time to consider the complex issues that contribute to planning a proper retirement budget?
  2. If two-thirds of respondents have a retirement savings goal, why did only one in four report having a formal, written retirement plan?

As a retirement income planner or financial advisor, the knowledge gaps indicated in the quiz present you with an opportunity to educate and help your clients. Here’s what you can do to keep clients informed, accountable and on pace to achieve sustainable retirement income:

Financial Advisors Need to Increase Clients’ Knowledge

If the extensive libraries of print and online news articles written about retirement planning are any indication, Americans have a clear thirst for knowledge about the topic. But unfortunately, the quiz proves they lack expertise and education. This knowledge gap is where experienced retirement planners and financial advisors can step in, helping teach and inform clients about things like risks they may face in retirement, optimal places to live during retirement, as well as more psychological considerations like how to replace the feeling of fulfillment often provided by working.  

Financial Advisors Need to Increase Their Knowledge

Perhaps one of the most disconcerting findings from the survey was that respondents with a client-advisor relationship scored an average of 43 percent, while “do-it-yourself” investors scored an average of 48 percent. This may indicate advisors either lack adequate retirement income expertise and are therefore unable to educate their clients, or they’ve neglected to sufficiently educate the people they serve. In a post-DOL rule environment where more financial services practitioners will be held to the higher fiduciary standard, this statistic is particularly concerning. While both scenarios are detrimental to optimizing the success of a retirement income strategy, they can be remedied with either a plan to develop more comprehensive retirement income skills, or a plan to inform clients more proactively and/or transparently.

4 Retirement Planning Obstacles for Advisors to Overcome

The survey identifies four significant barriers of which financial advisors and retirement planning experts must be aware.

  • It is difficult for clients to appreciate the urgency of the retirement planning issues they face.
  • It is hard for clients to make a fully-informed decision on investment options or retirement income solutions because they lack details and the ability to anticipate complex issues that can arise.
  • Clients without adequate retirement planning knowledge are less likely to take ownership of the retirement plan than those with knowledge, which can mean failing to execute the plan.
  • Clients (or their families) who do not understand what retirement planning options exist are more likely to be dissatisfied with the results of retirement planning consultations than those with a firm understanding.

Solving the Retirement Literacy Gap

While America’s failing score may at first seem discouraging, it offers financial advisors and retirement planners the opportunity to take charge and make proactive changes in the way they conduct business and manage client relationships. Advisors can improve retirement literacy by pursuing an advanced designation like the Retirement Income Certified Professional® (RICP®).

Advisors who achieve this specialized credential are better equipped to engage clients in the retirement income planning process and more prepared to make recommendations for a fruitful and sustainable long-term strategy. In addition to bolstering their knowledge and retirement planning expertise, advisors can direct clients to a number of self-education resources like The College’s retirement planning resources library for consumers.

Explore all the results and findings that came from this exercise in retirement income planning, read "America Fails Retirement Literacy Quiz."

New Call-to-action

Related posts

Retirement

Use the Bucket Strategy to Promote Successful Investing Habits

What Is The Bucket Strategy?

The bucket strategy is a way to think about asset allocation by conceptualizing a portfolio as a series of “buckets,” each of which contain assets of varying risk...

Read More
Retirement

Annuities in Retirement Income Planning

In this series of interviews, professor Jamie Hopkins and I talk with retirement income expert Curtis Cloke about using income annuities in a retirement income plan. The conversations include a...

Read More
Retirement

Silver Divorce and Retirement Income Planning: Pensions

The rate of silver divorce – divorce among Americans aged 50 and older – has doubled since 1990. There is a significant emotional cost to ending a long term marriage, but splitting later in life...

Read More