While more Americans are feeling financially secure compared to five years ago, most significantly underestimate their projected life expectancy, how much they will need to cover health care costs in retirement and how much life insurance they will need, according to new survey results.
The survey from Financial Engines found that nearly half (47%) of Americans said they felt “somewhat or much more secure” about their finances compared to five years ago, but just 8% of those respondents – and 6% surveyed overall – were able to pass a related quiz concerning likely financial decisions they will need to make during their lifetimes.
“It’s not surprising that Americans are feeling better about their financial situations given low unemployment and a record-breaking stock market. But as our quiz shows, there’s a persistent problem with financial literacy in this country,” says Andy Smith, a CFP with Financial Engines.
Survey respondents who took the quiz struggled most with questions regarding long-term financial wellbeing, such as claiming Social Security benefits, making arrangements for health care in retirement and purchasing the appropriate amount of life insurance, according to the results.
Most respondents significantly underestimate how much they will need to cover out-of-pocket health care costs through retirement. More than half (58%) of those age 65 or older and three-quarters (76%) of those ages 55 to 64 believe the typical married couple retiring today at age 65 will need between $50,000 and $200,000, considerably below estimated average costs.
In addition, only one-fifth (22%) of those surveyed said they felt confident about claiming Social Security benefits, and nearly two-thirds of people (65%) who took the quiz were not aware they could defer claiming Social Security benefits until age 70 and earn a higher percentage in benefits for each year they delayed.
Financial Engines further noted that many people underestimate standard assumptions for life expectancy, which can lead them to save much less than they need. The survey found that nearly three out of four people (72%) were unaware that the typical 65-year-old man can expect to live another 20 years, on average, with 61% underestimating longevity by at least five years.
The survey included 1,000 individuals between the ages of 18 and 65 who are employed full-time, part-time or self-employed, with fielding executed in July 2017.
If you want to test your own financial knowledge, take the Financial Engines quiz here.
