American Adults Show Lack of ‘Retirement Fluency’

As poor financial decisions often correlate with low levels of financial literacy, it is a cause for concern that U.S. adults consistently struggle to understand retirement-related topics, according to the 2024 TIAA Institute-GFLEC Personal Finance Index. 

On average, U.S. adults only correctly answered 48% of the 28 financial literacy questions provided by TIAA and the Global Financial Literacy Excellence Center in the Personal Finance Index survey, and this figure has hovered around the 50% mark since the inaugural survey in 2017. 

Beyond teaching more financial literacy education in primary and secondary schools, authors argued in the report that policymakers should design initiatives and programs specifically targeted to Black and Hispanic workers, who display much lower levels of financial literacy. 

The lack of “retirement fluency” is also a signal to employers that more education is needed on topics like Medicare, longevity and retirement income.  

Authors of the report included Paul Yakoboski at the TIAA Institute, Annamaria Lusardi at Stanford University and GFLEC and Andrea Sticha at Stanford Graduate School of Business and GFLEC. 

TIAA and GFLEC noted that financial literacy significantly varied based on the respondents’ sociodemographic characteristics. 

For example, financial literacy among women has consistently lagged behind that of men. That continues this year as there was a 10-point gender gap in the percentage of index questions correctly answered in 2024.   

Black and Hispanic Americans also scored lower than Asian and white Americans, and Gen Z respondents only correctly answered 37% of the questions.  

Five questions in the 2024 P-Fin Index survey were specifically used to gauge basic “retirement fluency,” or knowledge that promotes financial well-being in retirement, focused on the following five topics: Social Security benefits, Medicare coverage of health care expenses, employment-based retirement savings, ensuring lifetime income and life expectancy in retirement. 

Respondents struggled most with questions about Medicare coverage and life expectancy, as only 30% of adults had a general understanding of Medicare’s average coverage rate of health care expenses in retirement, and only 32% knew how long people tend to live upon reaching retirement age.  

On the other hand, more than half of all respondents (53%) knew that annuities provide lifetime income.  

The American College of Financial Services found similar results in its recent survey. That study, for example, revealed that older Americans consistently underestimate life expectancy and are unaware of how long people are likely to live, with just 27% able to correctly identify the average life expectancy of a man at age 65. 

As a whole, TIAA and GFLEC found that retirement fluency was low among U.S. adults. On average, respondents correctly answered two questions out of the five. Only 4% of respondents were able to answer all five correctly. 

Retirement fluency was found to be linked to retirement income security, as 26% of those who correctly answered four or five of the retirement fluency questions said they are “very confident” they will have enough money to live comfortably throughout retirement, while only 7% of those groups are not at all confident. 

The survey also examined the link between financial literacy and financial wellness. Compared with those with a very high level of financial literacy, survey results showed that those with a very low level of financial literacy are: 

• Twice as likely to be debt constrained; 
• Three and a half times more likely to be financially fragile; 

• More than four times as likely to lack emergency savings sufficient to cover one month of living expenses; 
• More than three times as likely to be not at all confident about their retirement income prospects; 
• Six times more likely to spend 20 hours or more per week thinking about and dealing with issues and problems related to personal finances.  

This survey was conducted online in January of this year, sampling 3,876 individuals, ages 18 and older.