Retirement planning decisions are growing increasingly complex in America, and older workers are facing critical financial choices in the latter years of their professional lives. Making optimal choices, however, requires an increasing level of financial literacy and knowledge.
A 2010 North Carolina State University study for the National Bureau of Economic Research, “The Role of Financial Literacy in Determining Retirement Plans,” surveyed more than 1,500 older workers at three different U.S. corporations to evaluate the quality of individual decision-making. The study’s authors note that while the “snapshot” of the three companies surveyed is not nationally representative, it does provide insights into how retirement decisions are being approached.
The study’s findings include:
Workers reported a great deal of uncertainty about their level of post-retirement income: 56% did not know how much income they would get from their company pension in relation to their final salary.
36% reported that they did not know if they could maintain their standard of living after retirement, and 37% of workers said they were uncertain if they would need to seek more work post-retirement.
63% of workers did not know the normal retirement age that would maximize Social Security benefits (66); this and related confusion over the age for Medicare eligibility (65) impact decisions on when workers plan to retire.
Those who thought the normal retirement age for Social Security was younger than 66 planned to retire earlier.
Workers who believed the eligibility age for the company pension plan was older than it actually was planned to retire 1.2 years later, compared with those who knew the correct eligibility age.
The study’s authors conclude that the survey suggests that many workers “are not well informed about company and national retirement plans and that incorrect knowledge affects retirement plans.” They suggest that educational programs to improve financial literacy could help older workers better achieve optimal retirement outcomes.
Tags: aging, consumer affairs, retirement, Social Security