Can You Beat My Score on This Retirement Literacy Test?

The first question that tripped me up asked, “Which one of the following is true about cash value life insurance?” As I now know, it is true that the cash value portion of the policy will accumulate tax deferred, but it’s not true that you typically cannot borrow from the cash value or that the policy will expire after a specified period of time.

I also overestimated the ideal stock allocation for the typical retirement portfolio, and another question that gave me pause spoke to what types of services traditional Medicare will cover between routine dental care, physical exams, hearing aids and several other options. Without revealing the answer, I can say I didn’t realize just how many types of services are cut out of Medicare policies and therefore must be paid for through other policies or out-of-pocket spending.

In addition to the intricacies of Medicare and Medicaid, my other weakest knowledge area is long-term care planning and nursing home expenses. For example, I had to guess on the true or false question asking about whether Medicare typically pays for the costs of a nursing home for the first year, and I guessed wrong.

Finally, I missed the mark on a question asking who pays for the majority of long-term care expenses provided in nursing homes. Suffice to say, it’s not Medicare nor private insurance.

Retirement Knowledge Powers Confidence

So, how did I do overall on the test? I’m proud (and admittedly a bit relieved) to report that I got a solid B-plus, scoring a 34 out of 38 possible correct answers. Far from a perfect score, but I have clearly benefited from more than a decade of reporting on the topic of retirement planning.

More important than bragging rights, however, is the fact that I had hoped and expected to do about that well, and that fact reflects one of the big survey results that caught the research team’s attention. That is, the researchers ended up being surprised by just how well respondents’ self-ratings of their retirement income knowledge matched up with their actual scores on the literacy test.

Among those who didn’t rate themselves very highly in terms of retirement knowledge, a whopping 73% had less than $100,000 saved for retirement. Compare that to the group at the other end of the spectrum — those who felt confident about their retirement smarts. Some 81% of this group had savings above $100,000. Put simply, as retirement planning knowledge improves, so does confidence.

My results also reflect that, although both the overall scores and underlying scores on the 12 retirement knowledge areas are low across the board, respondents show greater knowledge in areas having to do with recently lived experience. For example, people scored higher on questions about inflation and housing costs, while older Americans scored better on questions about Medicare.

Finally, the authors said their work establishes a compelling link between retirement literacy and working directly with a financial advisor — something I have the benefit of doing on a professional basis every day. Advised respondents have higher scores across all knowledge areas, are more financially well, and feel more confident about retirement.

On average, advised respondents scored 11 points higher on retirement income literacy than those without an advisor (38% vs. 27%), while those who work with financial advisors score nine points higher than those who don’t (50% vs. 41%) on financial well-being, measured using the Consumer Financial Protection Bureau’s Financial Well-Being Scale. Further, having a financial advisor predicts increased confidence and decreased stress and anxiety, controlling for demographic factors.