Most Americans heading toward retirement don't have a good grasp of the issues that could shape their financial well-being after they stop working.
Researchers from the TIAA Institute and the Global Financial Literacy Excellence Center at Stanford University recently asked adults five questions dealing with retirement issues focused on Social Security, Medicare and workplace retirement plans. On average, respondents answered two of five questions correctly. Only 4% of the respondents got all five right.
The lack of awareness of retirement issues could translate to poor financial decisions and other problems. "Individuals with greater retirement 'fluency' tend to be more confident that they will have enough money to live comfortably throughout retirement," the researchers wrote.
The quiz results from this study are the latest example showing generally low financial literacy. Test your knowledge on the five questions below, with correct answers at the bottom of the article.
Which statement about Social Security is false?
1. The amount someone receives in Social Security benefits depends upon his/her earnings during the last two years of full-time employment.
2. A worker receives Social Security benefit payments if he/she becomes disabled before retiring.
3. Social Security benefit payments will continue as long as an individual is alive, no matter how long he/she lives.
4. Don’t know.
On average, Medicare and other government programs cover how much of an individual’s health care expenses in retirement?
1. Over 90%.
2. About 2/3.
3. About 1/2.
4. Don’t know.
Latisha plans to start saving for retirement by setting aside $2,000 this year. Her employer offers a 401(k) plan and fully matches a worker’s contributions up to $5,000 each year. Under which scenario does Latisha have the largest amount in retirement savings at year-end?
1. She contributes $2,000 to the 401(k) plan and invests the money in a mutual fund that earns a 5% return during the year.
2. She contributes $2,000 to an IRA or Individual Retirement Account and invests the money in a mutual fund that earns a 5% return during the year.
3. It does not matter — she will have the same amount of year-end savings either way.
4. Don’t know.
Susan worries about living a long life and running out of money. What is the best way for her to address that possibility?
1. Buy an annuity.
2. Buy life insurance.
3. There is nothing she can do about this.
4. Don’t know.
(For men) On average in the U.S., how long will a 65-year-old man live?
1. About 14 more years (age 79).
2. About 19 more years (age 84).