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WASHINGTON, D.C. — April is Financial Literacy Month and, according to a survey by the Insured Retirement Institute (IRI), a much-needed opportunity for consumers to brush up on their financial smarts.

IRI’s “Retirement Readiness Among Older Workers” report found only 26 percent of respondents correctly estimated how much annual income would be required in 10 years to maintain their standard of living when the annual inflation rate is three percent.

“Understanding the erosive effect of inflation on spending power is critically important for planning to enjoy a secure retirement,” said Frank O’Connor, IRI Vice President, Research. “And consumers need to understand the importance of having a portion of retirement investment portfolios in risk assets that have a better chance of keeping pace with inflation than ’safe’ investment options.”

O’Connor noted that investing part of retirement savings in annuities can provide a stream of protected monthly income that can help cover essential expenses with another portion of savings invested to generate growth.

The survey also revealed that nearly seven in 10 respondents did not understand sequence of returns risk, the concept that it is preferable to experience a significant market correction late in retirement versus near the outset when one is taking regular withdrawals for retirement income.

“Failing to consider sequence of returns risk immediately before or at the early stages of retirement could have a significant, negative long-term impact on retirement savings that ultimately results in the exhaustion of financial assets while income is still needed,” O’Connor said.

Survey respondents fared better on knowing the average Social Security monthly retirement benefit. Forty-two percent of respondents answered correctly with $1,500 per month. However, four in 10 respondents overestimated the average monthly Social Security benefit.

“This is another area where workers would benefit from having a relationship with a financial advisor who can help them understand how much they can expect to receive from Social Security and develop a strategy to maximize benefits,” O’Connor said.

Only a minority of survey respondents – fewer than three in 10 – could correctly calculate the monthly income that can be safely withdrawn from a diversified investment portfolio.

“Failing to understand the amount of monthly income that retirement savings can generate could lead to overly optimistic retirement income expectations and hasten the depletion of retirement funds,” O’Connor said. “This also points to another benefit of annuities: using a portion of savings to lock in lifetime income is a disciplined way to deploy assets and guard against overspending.”

O’Connor said that financial literacy and retirement planning fundamentals are critical to securing one’s financial future. “In addition to gaining a firm understanding of retirement planning essentials, consumers should engage with a financial professional to develop a retirement plan with strategies for generating protected income that cannot be outlived.”

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Contact: Dan Zielinski


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